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 need to discover two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to assess your willingness to repay the loan, they consult your credit score.
The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written more on FICO here.
Credit scores only consider 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 repay the loan while specifically excluding any other demographic factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score reflects the good and the bad of your credit history. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.
Your credit report must contain 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 enough information in your report to generate an accurate 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 up credit history before they apply for a loan.
At The Rate Kings Mortgage LLC, we answer questions about Credit reports every day. Call us: (610) 572-3635.