Before lenders decide to give you a loan, they must know that you're willing and able to pay back that mortgage loan. To assess your ability to repay, they look at your income and debt ratio. In order to assess your willingness to repay the loan, they consult your credit score.
The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.
Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess willingness to repay the loan while specifically excluding any other demographic factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score results from both positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.
To get 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 generate a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply.
MGM Mortgage Inc. can answer questions about credit reports and many others. Call us: 800-555-6144.