About Your Credit Score
Before deciding on what terms they will offer you a mortgage loan, lenders need to discover two things about you: your ability to pay back the loan, and if you will pay it back. To understand your ability to repay, they look at your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they consult your credit score.
The most widely 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 about FICO here.
Credit scores only consider the information contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other personal factors.
Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. 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 sufficient information in your report to build an accurate score. If you don't meet the criteria for getting a credit score, you may need to work on a credit history before you apply for a mortgage loan.
At Milestone Mortgage, Inc., we answer questions about Credit reports every day. Call us: (317) 595-9600.