A Score that Really Matters: Your Credit Score
Before lenders make the decision to lend you money, they have to know if you're willing and able to pay back that mortgage. To understand whether you can repay, they look at your income and debt ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.
The most widely 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). You can find out more on FICO here.
Credit scores only take into account the information in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score reflects both the good and the bad in your credit history. Late payments will lower your credit score, but consistently making future payments on time will raise your score.
To get a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to build a score. Should you not meet the criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage.
At United Capital Mortgage, Inc., we answer questions about Credit reports every day. Give us a call at 2147187183.