A Score that Really Matters: The Credit Score
Before lenders make the decision to give you a loan, they need to know that you are willing and able to pay back that mortgage loan. To understand whether you can repay, they assess your income and debt ratio. In order to calculate your willingness to pay back the 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 about FICO here.
Credit scores only take into account the information in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to repay a loan.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.
Your credit report should 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 history ensures that there is sufficient information in your report to assign a score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building up a credit history before they apply.
First Southeast Mortgage Corporation can answer your questions about credit reporting. Call us: 954.920.9799.