Before lenders decide to give you a loan, they want to know that you are willing and able to repay that mortgage. To assess your ability to repay, lenders look at your debt-to-income ratio. In order to calculate your willingness to repay the mortgage loan, they consult your credit score.
The most widely used credit scores are called 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 find out more about FICO here.
Your credit score comes from your history of repayment. They don't take into account income, savings, down payment amount, or personal factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was developed as a way to consider only that which was relevant to a borrower's likelihood to pay back the lender.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score reflects both the good and the bad of your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.
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 build an accurate score. Should you not meet the criteria for getting a score, you may need to establish a credit history before you apply for a mortgage.
Price Mortgage Group LLC can answer your questions about credit reporting. Give us a call at 405-513-7700.