A Score that Really Matters: Your Credit Score
Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must know two things about you: your ability to repay the loan, and if you are willing to pay it back. To figure out your ability to repay, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.
Credit scores only take into account the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to pay without considering any other demographic factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative information in your credit report. Late payments count against you, but a consistent 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 history ensures that there is sufficient information in your credit to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.
At Great Mortgage NMLS#478647, we answer questions about Credit reports every day. Call us: 708.966.9005.