Before they decide on the terms of your loan, lenders must discover two things about you: your ability to pay back the loan, and your willingness to repay the loan. To assess whether you can repay, they look at your income and debt ratio. To assess how willing you are to repay, they use 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). For details on FICO, read more here.
Credit scores only take into account the info contained in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess willingness to pay without considering any other personal factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers 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, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to generate an accurate score. If you don't meet the criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.
At First Southeast Mortgage Corporation, we answer questions about Credit reports every day. Call us: 954.920.9799.