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: your ability to pay back the loan, and if you are willing to pay it back. To understand your ability to pay back the loan, they look at your income and debt ratio. To assess your willingness to repay the mortgage loan, they look at your credit score.
The most commonly 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). We've written a lot more about FICO here.
Your credit score is a direct result of your repayment history. 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 without considering any other personal factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad in your credit report. Late payments lower your score, but consistently making future payments on time will raise your score.
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 enough information in your report to build an accurate score. If you don't meet the criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage loan.
Reliance Mortgage Service, Inc can answer questions about credit reports and many others. Call us at 562 320-0510.