About Your Credit Score
Before lenders make the decision to lend you money, they need to know if you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness 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. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.
Credit scores only assess the information in your credit reports. They do not consider your income, savings, down payment amount, or factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score considers both positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your report to calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building up credit history before they apply.
Signature Mortgage of Indiana can answer questions about credit reports and many others. Give us a call: 812-945-4400.