Before lenders make the decision to lend you money, they have to know that you are willing and able to repay that mortgage. To assess whether you can pay back the loan, they look at your income and debt ratio. To calculate your willingness to repay the loan, they look at your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.
Your credit score comes from your history of repayment. They don't take into account income, savings, amount of down payment, or factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's likelihood to repay a loan.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score is calculated from both the good and the bad in your credit history. Late payments will lower your score, but consistently making future payments on time will raise your score.
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 sufficient information in your credit to calculate an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to spend some time building up credit history before they apply for a loan.
Bright Vision Mortgage can answer your questions about credit reporting. Give us a call at (904) 342-3622.