Before lenders decide to give you a loan, they must know that you are willing and able to repay that mortgage. To understand your ability to pay back the loan, they assess your income and debt 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 were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding other personal factors.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score considers both positive and negative items in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.
To get a credit score, you must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your credit to generate a score. Some people don't have a long enough credit history to get a credit score. They should spend a little time building credit history before they apply.
At United Capital Mortgage, Inc., we answer questions about Credit reports every day. Give us a call at 214-718-7183.