Before lenders decide to give you a loan, they want to know if you're willing and able to repay that loan. To assess whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to repay the mortgage loan, they consult your credit score.
The most commonly 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 find out more on FICO here.
Credit scores only assess the information in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed as a way to take into account only what was relevant to a borrower's likelihood to pay back a loan.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score results from both positive and negative information in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Your credit report should contain 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 enough information in your report to generate a score. If you don't meet the criteria for getting a credit score, you might need to establish your credit history before you apply for a mortgage loan.
First Southeast Mortgage Corporation can answer questions about credit reports and many others. Call us at 954.920.9799.