A Score that Really Matters: The Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to know two things about you: whether you can repay the loan, and how committed you are to repay the loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most widely used credit scores are called 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 more on FICO here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's willingness to repay a loan.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated from both the good and the bad of your credit history. Late payments count against you, but a consistent record of paying on time will improve it.
Your credit report must 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 credit to calculate an accurate score. If you don't meet the minimum criteria for getting a score, you may need to work on your credit history before you apply for a mortgage loan.
Mutual Security Mortgage can answer questions about credit reports and many others. Call us at (303) 931-7879.