About Your Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must know two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To understand your ability to pay back the loan, they assess your income and debt ratio. To assess 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 (very high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's likelihood to pay back a loan.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative items in your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.
Your 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 assign an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.
The Lending Source can answer your questions about credit reporting. Call us at (973) 601-2122.