A Score that Really Matters: The Credit Score
Before lenders make the decision to give you a loan, they have to know if you're willing and able to repay that mortgage loan. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. In order to assess your willingness to pay back the loan, they consult your credit score.
The most widely used credit scores are 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.
Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to pay back a loan.
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 items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
Your report must contain 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 payment history ensures that there is sufficient information in your credit to assign a score. Some people don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply for a loan.
At Metro Mortgage, we answer questions about Credit reports every day. Call us at 866-300-1550.