Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to know two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they look at your income and debt ratio. To calculate your willingness to repay the loan, they look at your credit score.
Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthines. We've written a lot more on FICO here.
Credit scores only assess the information contained in your credit profile. They don't consider income, savings, amount of down payment, or personal factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to pay without considering any other demographic factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score comes from both the good and the bad of your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to assign an accurate score. Should you not meet the criteria for getting a credit score, you may need to establish a credit history prior to applying for a mortgage loan.
At C2 Financial Corporation, we answer questions about Credit reports every day. Give us a call: (727) 478-2797.
Get a New Loan Quote
Looking for a new home loan? Fill out the following form to get a fast quote from us.