Your Credit Score: What it means

Before they decide on the terms of your loan (which they base on their risk), lenders must find out two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To assess your ability to repay, lenders look at your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.

Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.

Your credit score is a direct result of your history of repayment. They never consider your income, savings, amount of down payment, or personal factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was invented as a way to take into account only that which was relevant to a borrower's willingness to pay back a loan.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score comes from both the good and the bad in your credit report. Late payments count against you, but a record of paying on time will improve it.

Your credit 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 history ensures that there is sufficient information in your report to generate a score. Some people don't have a long enough credit history to get a credit score. They should spend some time building up a credit history before they apply.

At Milestone Mortgage, Inc. NMLS#136714, we answer questions about Credit reports every day. Call us at 3175959600.