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Before lenders decide to lend you money, they need to know that you're willing and able to repay that mortgage loan. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthiness. We've written more about FICO here.
Your credit score comes from your repayment history. They never consider your income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding any other irrelevant factors.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is calculated with positive and negative items in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
Your credit report must have at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is enough information in your report to calculate a score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building a credit history before they apply.
Primary Residential Mortgage Inc. can answer questions about credit reports and many others. Call us: 540-433-6611.
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