A Score that Really Matters: Your Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to know two things about you: your ability to pay back the loan, and your willingness to repay the loan. To understand your ability to pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.
The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more on FICO here.
Your credit score is a 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 as a way to take into account solely that which was relevant to a borrower's likelihood to repay the lender.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score considers both positive and negative items in your credit report. Late payments will 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 sufficient information in your report to build a score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building up a credit history before they apply.
Channel Mortgage LLC can answer your questions about credit reporting. Give us a call at (718) 639-9500.