Your Credit Score: What it means

Before lenders make the decision to lend you money, they need to know if you are willing and able to repay that mortgage loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. We've written more about FICO here.

Credit scores only assess the information contained in your credit reports. They never consider income, savings, amount of down payment, or personal factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was invented as a way to take into account only that which was relevant to a borrower's willingness to repay the lender.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from both the good and the bad of your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your report to assign an accurate score. Should you not meet the minimum criteria for getting a score, you might need to establish your credit history prior to applying for a mortgage loan.

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