Credit Scoring

Before deciding on what terms they will offer you a mortgage loan, lenders want to know two things about you: your ability to repay the loan, and your willingness to repay the loan. To assess whether you can repay, they assess your income and debt ratio. In order to assess your willingness to pay back the loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more on FICO here.

Credit scores only consider the info in your credit profile. They don't take into account your income, savings, down payment amount, or demographic factors like sex race, national origin 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 developed as a way to consider solely that which was relevant to a borrower's willingness to repay a loan.

Your current debt level, 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 score, but consistently making future payments on time will improve your score.

Your 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 payment history ensures that there is enough information in your credit to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply for a loan.

Milestone Mortgage, Inc. NMLS#136714 can answer questions about credit reports and many others. Give us a call: 3175959600.