About Your Credit Score
Before they decide on the terms of your mortgage loan, lenders need to know two things about you: your ability to repay the loan, and if you are willing to pay it back. To understand whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness to repay the loan, they consult your credit score.
The most commonly 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). We've written a lot more about FICO here.
Your credit score is a result of your history of repayment. They do not take into account your income, savings, amount of down payment, or factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's likelihood to pay back the lender.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers both positive and negative information in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Your report must have 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 history ensures that there is enough information in your credit to build a score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.
At Pauline Shah, we answer questions about Credit reports every day. Give us a call at 925-895-4155.