About Your Credit Score
Before they decide on the terms of your loan (which they base on their risk), lenders must discover two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to repay, they assess your debt-to-income ratio. 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 were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.
Your credit score comes from your repayment history. They do not take into account income, savings, down payment amount, or demographic factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's likelihood to repay the lender.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score considers both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.
Your report should have 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 payment history ensures that there is sufficient information in your credit to generate an accurate score. Some people don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.
At Milestone Mortgage, Inc. NMLS#136714, we answer questions about Credit reports every day. Give us a call: 3175959600.