About Your Credit Score
Before lenders decide to lend you money, they need to know that you are willing and able to repay that mortgage. To assess whether you can pay back the loan, they look at your income and debt ratio. In order to assess your willingness to repay the mortgage loan, they look at your credit score.
The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.
Your credit score is a result of your repayment history. They do not consider income, savings, amount of down payment, or demographic factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering any other demographic factors.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score is based on the good and the bad of your credit history. Late payments lower your score, but consistently making future payments on time will raise your score.
To get a credit score, you must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your credit to build an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building up a credit history before they apply for a loan.
The Mortgage Exchange Service LLC can answer your questions about credit reporting. Give us a call: 703.255-5810.