About Your Credit Score
Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must know two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they look at your income and debt ratio. In order to calculate your willingness to pay back the loan, they consult 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 (very high risk) to 850 (low risk). You can learn more about FICO here.
Your credit score comes from your history of repayment. They never consider income, savings, down payment amount, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to take into account only what was relevant to a borrower's likelihood to pay back a loan.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score comes from both the good and the bad of your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
To get a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is enough information in your report to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.
At Coastal Mortgage Corp., we answer questions about Credit reports every day. Give us a call: 504-866-5626.
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