Before they decide on the terms of your loan, lenders need to discover two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more on FICO here.
Your credit score is a direct result of your repayment history. They don't take into account income, savings, down payment amount, or factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider only that which was relevant to a borrower's likelihood to repay a loan.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from both the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will improve it.
Your 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 history ensures that there is sufficient information in your credit to build 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 for a loan.
At AmeriBest Mortgage, we answer questions about Credit reports every day. Call us at (321) 777-7277.