A Score that Really Matters: The Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to repay the loan, and if you will pay it back. To assess whether you can pay back the loan, they assess your income and debt 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 Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score comes from your repayment history. They do not consider income, savings, down payment amount, or demographic factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's willingness to repay a loan.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score results from positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.
To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to generate a score. Some people don't have a long enough credit history to get a credit score. They may need to spend a little time building a credit history before they apply.
1st Credential Mortgage Inc can answer questions about credit reports and many others. Give us a call: (281) 778-0805.