Before lenders decide to lend you money, they have to know that you are willing and able to repay that mortgage. To assess your ability to repay, they assess your debt-to-income ratio. In order 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. The FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more about 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. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding other demographic factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score results from positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your credit to calculate a score. If you don't meet the criteria for getting a score, you might need to establish a credit history before you apply for a mortgage loan.
Foxfield Financial can answer your questions about credit reporting. Call us at 720-598-8300.