Your Credit Score: What it means
Before they decide on the terms of your mortgage loan, lenders must know two things about you: your ability to repay the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only assess the info in your credit reports. They do not take into account income, savings, down payment amount, or factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other irrelevant factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih both positive and negative items 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, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your credit to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply.
Liberty Home Mortgage can answer your questions about credit reporting. Give us a call at 9724662551.