Before they decide on the terms of your mortgage loan, lenders must discover two things about you: whether you can repay the loan, and your willingness to repay the loan. To assess whether you can pay back the loan, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.
Credit scores only take into account the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to repay the loan without considering other demographic factors.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score reflects the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will improve it.
Your report should 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 enough information in your credit to calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to work on your credit history prior to applying for a mortgage.
At Blue Door Mortgage, we answer questions about Credit reports every day. Call us: (617) 527-BLUE(2583).