A Score that Really Matters: The Credit Score
Before they decide on the terms of your loan, lenders want to find out two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To figure out your ability to repay, they assess your debt-to-income ratio. To calculate your willingness to pay back the mortgage loan, they look at 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). For details on FICO, read more here.
Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding other irrelevant factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score comes from both the good and the bad of your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.
To get a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to calculate a score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.
At Trustin Mortgage Corporation, we answer questions about Credit reports every day. Call us at (302) 765-8089.
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