About Your Credit Score
Before lenders decide to lend you money, they need to know that you're willing and able to pay back that mortgage loan. To understand whether you can pay back the loan, they assess your income and debt ratio. In order to assess your willingness to repay the loan, they consult your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score comes from your repayment history. They do not take into account your income, savings, down payment amount, or personal factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's likelihood to pay back a loan.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score is calculated from both the good and the bad of your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Your credit report must contain 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 sufficient information in your credit to assign an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building credit history before they apply for a loan.
Milestone Mortgage, Inc. can answer your questions about credit reporting. Call us at (317) 595-9600.