About Your Credit Score
Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To assess your ability to pay back the loan, they look at your income and debt ratio. In order to calculate your willingness to repay the mortgage loan, they consult your credit score.
The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.
Credit scores only consider the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is now. Credit scoring was developed to assess willingness to pay without considering other personal factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score is calculated from the good and the bad of your credit history. Late payments count against you, but a consistent record of paying on time will improve it.
Your 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 history ensures that there is enough information in your credit to generate an accurate score. Should you not meet the criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage loan.
Coastal Mortgage Corp. can answer your questions about credit reporting. Call us: 504-866-5626.
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