A Score that Really Matters: The Credit Score
Before lenders make the decision to give you a loan, they want to know if you're willing and able to repay that mortgage loan. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.
The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.
Credit scores only assess the information in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments count against you, but a record of paying on time will improve it.
Your credit report should 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 enough information in your credit to generate an accurate score. Should you not meet the criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage.
AmeriBest Mortgage can answer questions about credit reports and many others. Give us a call at (321) 777-7277.