Before lenders make the decision to give you a loan, they need to know that you're willing and able to repay that loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To calculate your willingness to repay the loan, they look at your credit score.
The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written more on FICO here.
Your credit score comes from your repayment history. They never consider income, savings, amount of down payment, or personal factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to consider only what was relevant to a borrower's willingness to pay back the lender.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score is calculated from the good and the bad in your credit history. Late payments count against you, but a record of paying on time will improve 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 payment history ensures that there is sufficient information in your report to build an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply.
AmeriBest Mortgage can answer your questions about credit reporting. Give us a call: (321) 777-7277.