A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a loan, lenders want to discover two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To assess your ability to repay, they look at your income and debt ratio. To assess your willingness to repay, they use 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). For details on FICO, read more here.

Credit scores only consider the info contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was invented as a way to consider only what was relevant to a borrower's willingness to repay the lender.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score results from both positive and negative information in your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.

To get a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your report to assign a score. If you don't meet the minimum criteria for getting a score, you may need to work on a credit history prior to applying for a mortgage.

Milestone Mortgage, Inc. NMLS#136714 can answer your questions about credit reporting. Call us: 3175959600.