Before they decide on the terms of your mortgage loan, lenders want to find out two things about you: whether you can pay back the loan, and if you will pay it back. To understand 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 commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more about FICO here.
Credit scores only consider the information contained in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to take into account only what was relevant to a borrower's likelihood to pay back the lender.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score is calculated wtih positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
Your credit 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 sufficient information in your credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building up credit history before they apply.
Harbor View Lending* a DBA of Megastar Financial can answer questions about credit reports and many others. Call us: (207) 571-8034.