Your Credit Score: What it means
Before lenders make the decision to lend you money, they want to know if you're willing and able to repay that mortgage. To assess your ability to repay, they look at your debt-to-income ratio. In order to assess your willingness to repay the mortgage loan, they look at your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only assess the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were first invented as it is today. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's likelihood to pay back the lender.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score results from positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making 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 payment history ensures that there is sufficient information in your report to assign an accurate score. Should you not meet the minimum criteria for getting a credit score, you may need to work on your credit history before you apply for a mortgage loan.
Homewood Mortgage, Inc. can answer questions about credit reports and many others. Call us at 205-941-1484.