About Your Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to know two things about you: whether you can pay back the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To calculate your willingness to pay back the mortgage 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 (very high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to repay the loan while specifically excluding any other personal factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score reflects both the good and the bad in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
Your credit report must contain 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 history ensures that there is enough information in your credit to calculate an accurate score. If you don't meet the criteria for getting a score, you might need to establish a credit history prior to applying for a mortgage loan.
Custom Lending Group can answer your questions about credit reporting. Give us a call at (707) 252-2700.