Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must know two things about you: whether you can repay the loan, and if you will pay it back. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay the loan, they look at 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). For details on FICO, read more here.

Your credit score is a direct result of your history of repayment. They never consider your income, savings, down payment amount, or demographic factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed as a way to take into account only what was relevant to a borrower's willingness to pay back the lender.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative information in your credit report. Late payments lower your credit 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 sufficient information in your report to build a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.

Milestone Mortgage, Inc. NMLS#136714 can answer your questions about credit reporting. Call us: 3175959600.