Before they decide on the terms of your loan, lenders need to find out two things about you: whether you can repay the loan, and how committed you are to repay the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to calculate your willingness to repay the mortgage loan, they consult your credit score.
The most commonly 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 learn more on FICO here.
Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other irrelevant factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score is calculated from the good and the bad of your credit history. Late payments lower your credit score, but consistently making future payments on time will improve your score.
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 report to assign a score. Some people don't have a long enough credit history to get a credit score. They should spend some time building up a credit history before they apply.
Churchill Mortgage Company can answer questions about credit reports and many others. Give us a call: (703) 551-4107.