A Score that Really Matters: The Credit Score
Before lenders make the decision to lend you money, they want to know if you're willing and able to repay that loan. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. In order to assess your willingness to pay back the mortgage loan, they consult your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.
Credit scores only consider the info contained in your credit reports. They never consider income, savings, down payment amount, or personal factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering other demographic factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score reflects both the good and the bad of your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.
Your credit report should 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 history ensures that there is enough information in your credit to build a score. If you don't meet the criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage.
At Alternative Mortgage Group, we answer questions about Credit reports every day. Give us a call: 561-395-4264.