A Score that Really Matters: The Credit Score
Before lenders decide to give you a loan, they need to know if you're willing and able to pay back that mortgage loan. To figure out your ability to repay, they assess 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. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only assess 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 pay while specifically excluding any other demographic factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score results from both positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making 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 your credit history before you apply for a mortgage.
At The Mortgage Partner, we answer questions about Credit reports every day. Give us a call at 8888107112.