A Score that Really Matters: The Credit Score
Before lenders decide to give you a loan, they must know if you're willing and able to repay that mortgage loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To calculate your willingness to repay 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. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more on FICO here.
Credit scores only take into account the info contained in your credit reports. They don't consider your income, savings, amount of down payment, or factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding 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 considers both positive and negative items in your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.
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 payment history ensures that there is enough information in your credit to build an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to work on your credit history before you apply for a mortgage.
Reliance Mortgage Service, Inc can answer your questions about credit reporting. Call us: 562 320-0510.