Before lenders decide to give you a loan, they want to know if you're willing and able to repay that mortgage. To understand whether you can pay back the loan, they assess your income and debt ratio. In order to assess your willingness to repay the loan, they consult your credit score.
The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more on FICO here.
Your credit score comes from your history of repayment. They never take into account income, savings, down payment amount, or demographic factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering other demographic factors.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score is based on the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is enough information in your credit to calculate an accurate score. If you don't meet the minimum criteria for getting a score, you might need to establish your credit history before you apply for a mortgage loan.
Contemporary Mortgage Services, Inc can answer questions about credit reports and many others. Call us: 407-834-3377.
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