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 need to know two things about you: whether you can pay back the loan, and if you are willing to pay it back. To figure out your ability to repay, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only take into account the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding any other irrelevant factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated from the good and the bad of your credit history. Late payments count against you, but a consistent record of paying on time will raise it.
For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is enough information in your credit to assign a score. Some people don't have a long enough credit history to get a credit score. They should spend some time building a credit history before they apply.
Financial Edge Mortgage Corp. can answer questions about credit reports and many others. Call us at 425-508-9988.
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