Before lenders make the decision to give you a loan, they need to know if you are willing and able to pay back that loan. To understand whether you can pay back the loan, they look at your income and debt ratio. In order to assess 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 Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more on FICO here.
Credit scores only consider the information in your credit reports. They never take into account your income, savings, down payment amount, or factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering other irrelevant factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score is based on both the good and the bad of your credit report. Late payments count against your score, but a record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your credit to generate an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply.
Reliance Mortgage Service, Inc can answer your questions about credit reporting. Call us: 562 320-0510.