About Your Credit Score
Before lenders make the decision to give you a loan, they need to know that you are willing and able to pay back that mortgage loan. To assess whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to repay, they use 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 (very high risk) to 850 (low risk). We've written a lot more about FICO here.
Credit scores only consider the information in your credit reports. They don't take into account your income, savings, down payment amount, or factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding other demographic factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih both positive and negative information in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your credit to build a score. Should you not meet the minimum criteria for getting a credit score, you may need to establish your credit history before you apply for a mortgage loan.
At SelectPlus Lending, we answer questions about Credit reports every day. Give us a call at 818-889-7300.