Your Credit Score: What it means
Before they decide on the terms of your mortgage loan, lenders want to find out two things about you: your ability to repay the loan, and your willingness to repay the loan. To assess your ability to repay, they assess your debt-to-income ratio. In order to assess your willingness to pay back the loan, they look at 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.
Credit scores only assess the information contained in your credit reports. They don't consider your income, savings, amount of down payment, or personal factors like gender, race, nationality or marital status. 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 personal factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is based on both the good and the bad of your credit history. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Your credit report must have 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 enough information in your report to calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to work on your credit history prior to applying for a mortgage.
Price Mortgage Group LLC can answer questions about credit reports and many others. Give us a call: 405-513-7700.