A Score that Really Matters: The Credit Score
Before they decide on the terms of your mortgage loan, lenders must know two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To assess your ability to repay, lenders assess your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.
Your credit score is a result of your repayment history. They do not take into account income, savings, down payment amount, or demographic 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 pay without considering any other personal factors.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score comes from the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will raise it.
Your credit 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 enough information in your report to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building up a credit history before they apply for a loan.
Bright Vision Mortgage can answer questions about credit reports and many others. Call us: (904) 342-3622.