About Your Credit Score
Before lenders decide to give you a loan, they need to know if you're willing and able to repay that mortgage. To assess your ability to pay back the loan, 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 were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.
Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is today. 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 a few other factors are considered. Your score results from both positive and negative items 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 should 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 history ensures that there is sufficient information in your report to build an accurate 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 for a loan.
American Commerce Mortgage can answer your questions about credit reporting. Call us: 714-970-9700.