About Your Credit Score
Before deciding on what terms they will offer you a loan, lenders want to know two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they consult 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). You can learn more about FICO here.
Credit scores only take into account the info in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was developed to assess willingness to repay the loan while specifically excluding any other demographic factors.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score considers positive and negative items in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.
Your 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 payment history ensures that there is sufficient information in your report to calculate a score. Should you not meet the criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage.
Savers Home Loans can answer your questions about credit reporting. Call us: (800) 974-0509.