Your Credit Score: What it means
Before lenders decide to lend you money, they have to know that you're willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To calculate your willingness to repay the loan, they look at your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only take into account the info contained in your credit reports. They never consider your income, savings, down payment amount, or factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering 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 information in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.
To get a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is enough information in your credit to calculate a score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.
At Price Mortgage Group LLC, we answer questions about Credit reports every day. Give us a call: 405-513-7700.