Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to discover two things about you: your ability to repay the loan, and if you will pay it back. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess your willingness to pay back the 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 (high risk) to 850 (low risk). You can find out more about FICO here.
Your credit score comes from your repayment history. 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 take into account only that which was relevant to a borrower's willingness to pay back the lender.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is based on the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.
Your credit report must 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 payment history ensures that there is sufficient information in your credit to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building up credit history before they apply.
At Coastal Mortgage Corp., we answer questions about Credit reports every day. Give us a call at 504-866-5626.
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