Your Credit Score: What it means

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

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

Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account solely 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 number of inquiries are all considered in credit scoring. Your score is based on both the good and the bad of your credit history. Late payments lower your credit score, but establishing or reestablishing a good track record of making 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 history ensures that there is sufficient information in your report to calculate a score. Should you not meet the criteria for getting a score, you may need to establish your credit history before you apply for a mortgage loan.

The Elite Lending Team at Milestone Mortgage Corporation can answer your questions about credit reporting. Give us a call at 561-373-4149.


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