Your Credit Score: What it means
Before they decide on the terms of your loan, lenders want to find out two things about you: whether you can repay the loan, and how committed you are to repay the loan. To understand whether you can pay back the loan, they assess your income and debt ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.
The most widely 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). For details on FICO, read more here.
Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding other demographic factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score results from positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
Your report must contain 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 report to assign an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage loan.
At Reliance Mortgage Service, Inc, we answer questions about Credit reports every day. Call us: 562 320-0510.