Your Credit Score: What it means
Before deciding on what terms they will offer you a mortgage loan, lenders must know two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to pay back the loan, they look at your credit score.
The most commonly 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). We've written more on FICO here.
Your credit score is a direct result of your repayment history. They do not take into account your income, savings, down payment amount, or personal factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding other irrelevant factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score results from positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will raise it.
For the agencies to calculate a credit score, you 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 assign a score. Should you not meet the criteria for getting a score, you may need to work on a credit history before you apply for a mortgage.
At Bright Vision Mortgage, we answer questions about Credit reports every day. Give us a call at 9043423622.