Before they decide on the terms of your mortgage loan, lenders must find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more on FICO here.
Your credit score is a direct result of your history of repayment. 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 repay the loan without considering other personal factors.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score is based on 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.
To get a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is enough information in your report to assign an accurate 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 up credit history before they apply.
AmeriBest Mortgage can answer questions about credit reports and many others. Give us a call at (321) 777-7277.