Before they decide on the terms of your mortgage loan, lenders want to find out two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more on FICO here.
Your credit score comes from your repayment history. They don't take into account your income, savings, amount of down payment, or personal factors like sex ethnicity, nationality or marital status. 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 repay a loan.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score is calculated from both the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will improve it.
Your 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 enough information in your credit to generate an accurate score. Should you not meet the criteria for getting a score, you may need to establish your credit history before you apply for a mortgage.
Savers Home Loans can answer questions about credit reports and many others. Call us at (800) 974-0509.