A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a loan, lenders want to find out two things about you: whether you can repay the loan, and if you are willing to pay it back. To understand your ability to repay, they look at your income and debt 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. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more on FICO here.

Credit scores only consider the info contained in your credit profile. They do not consider income, savings, amount of down payment, or demographic factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is in the present day. Credit scoring was invented as a way to consider solely what was relevant to a borrower's willingness to pay back the lender.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score results from both positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to build a score. If you don't meet the criteria for getting a score, you might need to establish your credit history prior to applying for a mortgage loan.

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