About Your Credit Score
Before lenders make the decision to give you a loan, they must know if you are willing and able to pay back that mortgage loan. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio (DTI). To calculate your willingness to pay back the loan, they look at your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more about FICO here.
Credit scores only take into account the information in your credit profile. They never consider income, savings, amount of down payment, or factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess willingness to pay while specifically excluding any other demographic factors.
The following are all calculated into credit scores:
- Past delinquencies
- Derogatory payment behavior
- Current debt level
- Length of credit history
- Types of credit
- Number of credit inquiries
Your score comes from both the good and the bad of your credit history. Late payments count against you, but a record of paying on time will raise it.
Your report must have 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 payment history ensures that there is sufficient information in your report to build an accurate score. Should you not meet the criteria for getting a score, you may need to establish your credit history before you apply for a mortgage.
Colorado Mortgage Company can answer questions about credit reports and many others. Call us: 719-357-6601.