Before they decide on the terms of your mortgage loan, lenders want to know two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To understand your ability to repay, they look at your income and debt ratio. To assess your willingness to pay back the loan, they look at your credit score.
The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out 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. Credit scoring was developed to assess willingness to pay while specifically excluding any other personal factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is based on both the good and the bad in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.
For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your report to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building a credit history before they apply.
American Commerce Mortgage can answer your questions about credit reporting. Give us a call at 714-970-9700.