Before deciding on what terms they will offer you a loan, lenders need to find out two things about you: whether you can repay the loan, and if you will pay it back. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. In order 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). We've written a lot more about FICO here.
Your credit score is a result of your repayment history. They do not consider your income, savings, amount of down payment, or factors like sex race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to pay without considering other irrelevant factors.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score is based on both the good and the bad in your credit report. Late payments count against your score, 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 credit to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.
America's Money Source can answer your questions about credit reporting. Call us: 4078987559.