Before deciding on what terms they will offer you a mortgage loan, lenders need to discover two things about you: whether you can repay the loan, and how committed you are to repay the loan. To assess your ability to repay, they 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 FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.
Credit scores only assess the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to consider solely that which was relevant to a borrower's willingness to repay the lender.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score considers positive and negative information in your credit report. Late payments will lower your credit score, but consistently making future payments on time will raise your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is enough information in your credit to assign a score. Should you not meet the criteria for getting a credit score, you may need to work on your credit history before you apply for a mortgage.
At Capacity Lending, LLC, we answer questions about Credit reports every day. Give us a call at 469-640-0400.