Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan, lenders must find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess your willingness to repay the mortgage loan, they consult your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more on FICO here.

Your credit score is a result of your history of repayment. They do not take into account income, savings, amount of down payment, or demographic factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to pay without considering any other demographic factors.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score results from both positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

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 payment history ensures that there is sufficient information in your credit 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. Give us a call: 3175959600.