Your Credit Score: What it means
Before they decide on the terms of your loan, lenders must discover two things about you: whether you can repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to repay the loan, they look at your credit score.
Fair Isaac and Company formulated the first FICO score to assess creditworthines. For details on FICO, read more here.
Credit scores only take into account the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding other demographic factors.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score considers both positive and negative items in your credit report. Late payments will lower your 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 sufficient 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 work on a credit history prior to applying for a mortgage loan.
AmeriBest Mortgage can answer your questions about credit reporting. Call us: (321) 777-7277.