Before lenders make the decision to give you a loan, they must know if you are willing and able to pay back that loan. To assess whether you can repay, they assess 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 FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.
Your credit score comes from your repayment history. They never consider your income, savings, down payment amount, or personal factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess a borrower's willingness to pay without considering other irrelevant factors.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score comes from the good and the bad in your credit history. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.
To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to build an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on your credit history before you apply for a mortgage.
Nationwide Home Loans can answer questions about credit reports and many others. Call us at 5626935048.