About Your Credit Score
Before they decide on the terms of your loan (which they base on their risk), lenders must know two things about you: whether you can repay the loan, and how committed you are to repay the loan. To figure out your ability to repay, they look at your debt-to-income ratio. To calculate your willingness to pay back the loan, they consult your credit score.
The most commonly 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). You can learn more about FICO here.
Credit scores only take into account the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back the lender.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score is calculated wtih both positive and negative information in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
To get a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your report to build an accurate score. If you don't meet the criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage loan.
At AmeriBest Mortgage, we answer questions about Credit reports every day. Give us a call at (321) 777-7277.