Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must find out two things about you: your ability to repay the loan, and your willingness to pay back the loan. To understand whether you can repay, they assess your income and debt ratio. In order to assess 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 Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.
Credit scores only take into account the info 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 envisioned as a way to assess willingness to pay without considering other personal factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score results from positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.
To get a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is enough information in your credit to build an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage loan.
Executive Lending Group, LLC can answer your questions about credit reporting. Call us: (816) 525-8000.
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