About Your Credit Score
Before they decide on the terms of your loan, lenders must find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To figure out your ability to repay, they assess your debt-to-income ratio. In order to calculate your willingness to repay the loan, they look at your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.
Your credit score comes from your repayment history. They do not consider your income, savings, amount of down payment, or personal factors like sex 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 developed as a way to take into account only that which was relevant to a borrower's likelihood to repay the lender.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated from both the good and the bad of your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.
To get a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your report to generate a score. Should you not meet the minimum criteria for getting a score, you may need to establish your credit history before you apply for a mortgage.
At American Commerce Mortgage, we answer questions about Credit reports every day. Give us a call at 714-970-9700.