Credit Scores

Before they decide on the terms of your mortgage loan, lenders need to find out two things about you: your ability to pay back the loan, and your willingness to repay the loan. To assess whether you can repay, they assess your income and debt ratio. In order to assess your willingness to repay the loan, they look at your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only consider the info contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering other irrelevant factors.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score is calculated from the good and the bad of your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.

To get a credit score, you must have an active credit account with six months of payment history. This history ensures that there is enough information in your report to build a score. Some people don't have a long enough credit history to get a credit score. They should spend a little time building credit history before they apply for a loan.

At Milestone Mortgage, Inc., we answer questions about Credit reports every day. Call us: (317) 595-9600.

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