Before they decide on the terms of your mortgage loan, lenders need to find out two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to repay, lenders assess your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage 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.
Your credit score is a direct result of your repayment history. They do not take into account your income, savings, amount of down payment, or personal factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was developed to assess willingness to pay while specifically excluding other demographic factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score results from positive and negative items in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
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 report to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building a credit history before they apply.
At Mario Vega, we answer questions about Credit reports every day. Call us at 877-310-6200.
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