A Score that Really Matters: The Credit Score

Before lenders make the decision to give you a loan, they want to know if you're willing and able to pay back that mortgage loan. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.

The most widely 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 on FICO here.

Credit scores only consider the information contained in your credit reports. They never consider your income, savings, down payment amount, or personal factors like sex race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is in the present day. Credit scoring was developed as a way to consider only that which was relevant to a borrower's willingness to pay back the lender.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score results from 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.

Your credit 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 sufficient information in your report to calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to establish your 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.