Your Credit Score: What it means
Before lenders make the decision to lend you money, they must know that you're willing and able to repay that mortgage loan. To assess your ability to repay, they assess your income and debt ratio. To calculate your willingness to repay the mortgage loan, they consult your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only take into account the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is in the present day. Credit scoring was developed as a way to take into account only what was relevant to a borrower's likelihood to repay the lender.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers both positive and negative items in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Your credit 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 payment history ensures that there is sufficient information in your report to generate a score. Should you not meet the minimum criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage loan.
Alternative Mortgage Group can answer your questions about credit reporting. Give us a call: 561-395-4264.