A Score that Really Matters: The Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to repay the loan, and your willingness to pay back the loan. To understand your ability to repay, they assess your income and debt ratio. To assess your willingness to repay, they use 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 (very high risk) to 850 (low risk). You can learn more on FICO here.
Credit scores only consider the information contained in your credit profile. They do not take into account your income, savings, amount of down payment, or demographic factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding any other demographic factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih positive and negative information in your credit report. Late payments count against you, but a record of paying on time will improve it.
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 sufficient information in your report to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply.
Contemporary Mortgage Services, Inc can answer your questions about credit reporting. Call us: 407-834-3377.
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