Your Credit Score: What it means

Before they decide on the terms of your loan, lenders need to discover two things about you: your ability to pay back the loan, and your willingness to pay back the loan. To understand whether you can repay, they look at your income and debt ratio. In order to assess your willingness to pay back the mortgage loan, they consult your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. They never take into account your income, savings, amount of down payment, or demographic factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated from both the good and the bad of your credit history. Late payments lower your 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 six months of payment history. This history ensures that there is sufficient information in your credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building credit history before they apply.

The Elite Lending Team at Milestone Mortgage Corporation
NMLS# 133260 can answer your questions about credit reporting. Give us a call at 5613734149.