Before lenders decide to lend you money, they have to know that you are willing and able to repay that mortgage loan. To understand whether you can repay, they look at your income and debt ratio. In order to calculate your willingness to repay the loan, they look at 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 (high risk) to 850 (low risk). We've written a lot more about FICO here.
Credit scores only assess the info contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to repay the loan without considering other irrelevant factors.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score reflects the good and the bad of your credit history. Late payments lower your score, but consistently making future payments on time will improve your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to build a score. Should you not meet the criteria for getting a credit score, you might need to establish your credit history prior to applying for a mortgage loan.
At Price Mortgage Group LLC, we answer questions about Credit reports every day. Give us a call at 405-513-7700.