A Score that Really Matters: The Credit Score
Before lenders make the decision to lend you money, they want to know if you are willing and able to pay back that mortgage loan. To assess whether you can repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.
The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only consider the information contained in your credit profile. They never consider income, savings, amount of down payment, or factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to take into account only what was relevant to a borrower's willingness to repay a loan.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers positive and negative items in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.
Your credit report should 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 sufficient information in your credit to build an accurate score. Should you not meet the criteria for getting a score, you might need to work on a credit history before you apply for a mortgage loan.
Great Mortgage NMLS#478647 can answer questions about credit reports and many others. Call us: 708.966.9005.