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Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To figure out your ability to repay, they assess your debt-to-income ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthiness. You can learn more on FICO here.
Credit scores only take into account the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other personal factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score results from both positive and negative information in your credit report. Late payments count against you, but a record of paying on time will raise it.
To get a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is enough information in your credit to calculate a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.
At Blue Sky Mortgage, we answer questions about Credit reports every day. Call us at 970/476.0602.