Before lenders decide to lend you money, they have to know if you're willing and able to pay back that mortgage loan. To assess your ability to repay, they look at your income and debt ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.
The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.
Your credit score is a direct 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 invented as a way to consider only that which was relevant to a borrower's likelihood to repay a loan.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated from the good and the bad in your credit history. Late payments count against your score, but a consistent record of paying on time will improve it.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your credit to generate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to establish a credit history before you apply for a mortgage loan.
North American Financial can answer your questions about credit reporting. Call us: 702-524-1376.