Before lenders make the decision to lend you money, they have to know if you are willing and able to repay that mortgage. To assess whether you can repay, they assess your income and debt ratio. To assess how willing you are to repay, they use 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 (high risk) to 850 (low risk). We've written more on FICO here.
Your credit score comes from your repayment history. They do not consider income, savings, down payment amount, or personal factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to take into account solely what 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 results from positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
For the agencies to calculate 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 report to calculate an accurate score. If you don't meet the minimum criteria for getting a score, you might need to establish a credit history before you apply for a mortgage loan.
At First Community Bank of Central Al., we answer questions about Credit reports every day. Call us: (334) 285-8850.