About Your Credit Score
Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must know two things about you: whether you can pay back the loan, and your willingness to repay the loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To calculate your willingness to repay the loan, they look at your credit score.
The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score is a result of your repayment history. They don't consider your income, savings, down payment amount, or personal factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's likelihood to pay back the lender.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is based on both the good and the bad in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your credit to calculate a score. If you don't meet the criteria for getting a score, you might need to establish your credit history before you apply for a mortgage loan.
At Prime Capital Mortgage Corp, we answer questions about Credit reports every day. Give us a call: 248-644-1200.
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