Before lenders decide to lend you money, they want to know that you are willing and able to repay that mortgage loan. To figure out your ability to repay, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.
Credit scores only assess the information 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 developed as a way to take into account solely what was relevant to a borrower's likelihood to repay the lender.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score is based on both the good and the bad in your credit history. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
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 sufficient information in your credit to calculate a score. If you don't meet the criteria for getting a score, you may need to establish your credit history prior to applying for a mortgage.
Bright Vision Mortgage can answer questions about credit reports and many others. Give us a call: (904) 342-3622.