Your Credit Score: What it means

Before deciding on what terms they will offer you a loan, lenders want to find out two things about you: whether you can repay the loan, and if you will pay it back. To understand whether you can pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they consult your credit score.

Fair Isaac and Company formulated the original FICO score to assess creditworthines. For details on FICO, read more here.

Credit scores only assess the information contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to pay back a loan.

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

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This payment history ensures that there is enough information in your credit to build an accurate score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.

Milestone Mortgage, Inc. can answer questions about credit reports and many others. Call us at (317) 595-9600.

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