About Your Credit Score
Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must discover two things about you: whether you can pay back the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, they 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 commonly 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). We've written more on FICO here.
Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account only what was relevant to a borrower's willingness to repay the lender.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score comes from both the good and the bad in your credit history. Late payments count against you, but a 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 sufficient information in your report to build an accurate score. Should you not meet the criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.
Trustin Mortgage, LLC can answer questions about credit reports and many others. Call us: (302) 765-8089.
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