Credit Scores

Before lenders make the decision to give you a loan, they need to know if you're willing and able to pay back that mortgage. To figure out your ability to repay, lenders assess your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they consult your credit score.

Fair Isaac and Company formulated the original FICO score to assess creditworthines. We've written a lot more about FICO here.

Credit scores only consider the information contained in your credit reports. They never consider income, savings, amount of down payment, or demographic factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other irrelevant factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score is calculated from both the good and the bad of your credit history. Late payments will lower your credit score, but consistently making future payments on time will improve your score.

Your report should 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 build an accurate score. Should you not meet the criteria for getting a credit score, you might need to establish a credit history before you apply for a mortgage.

At Milestone Mortgage, Inc. NMLS#136714, we answer questions about Credit reports every day. Call us: 3175959600.