Your Credit Score: What it means
Before lenders make the decision to give you a loan, they have to know if you are willing and able to repay that mortgage loan. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. In order to calculate your willingness to repay the loan, they consult your credit score.
The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's willingness to repay the lender.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is based on the good and the bad of your credit report. Late payments count against your score, but a record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your report to generate a score. Some people don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.
At Alternative Mortgage Group, we answer questions about Credit reports every day. Call us: 561-395-4264.