A Score that Really Matters: The Credit Score

Before lenders decide to give you a loan, they must know that you're willing and able to pay back that mortgage loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more about FICO here.

Credit scores only consider the information in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was invented as a way to consider only what was relevant to a borrower's likelihood to repay the lender.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score results from positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is enough information in your credit to generate an accurate score. Should you not meet the minimum criteria for getting a score, you might need to establish a credit history before you apply for a mortgage.

At The Elite Lending Team at Milestone Mortgage Corporation
NMLS# 133260, we answer questions about Credit reports every day. Give us a call: 5613734149.