Your Credit Score: What it means

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

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more on FICO here.

Credit scores only take into account the info in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back the lender.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score comes from the good and the bad of your credit report. Late payments count against you, but a record of paying on time will improve it.

Your credit report should 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 history ensures that there is sufficient information in your credit to build a score. Should you not meet the criteria for getting a credit score, you might need to work on a credit history prior to applying for a mortgage.

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