Before deciding on what terms they will offer you a mortgage loan, lenders need to discover two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To figure out your ability to repay, lenders look at your debt-to-income ratio. In order to assess your willingness to repay the mortgage loan, they consult your credit score.
The most widely 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). We've written more about FICO here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to consider only what was relevant to a borrower's willingness to pay back the lender.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score results from both positive and negative information in your credit report. Late payments will lower your 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 history ensures that there is enough information in your credit to calculate an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building credit history before they apply for a loan.
Omni Mortgage Corp. can answer your questions about credit reporting. Give us a call at 7184417000.