Before they decide on the terms of your mortgage loan, lenders must find out two things about you: your ability to pay back the loan, and if you will pay it back. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to pay back the mortgage loan, they look at your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.
Credit scores only consider the information contained 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 consider only that which was relevant to a borrower's willingness to pay back a loan.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score is calculated wtih positive and negative information in your credit report. Late payments lower your credit 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 payment history ensures that there is sufficient information in your credit to build an accurate score. Should you not meet the minimum criteria for getting a score, you might need to establish your credit history prior to applying for a mortgage loan.
At 1st Credential Mortgage Inc, we answer questions about Credit reports every day. Give us a call: (281) 778-0805.