Credit Scoring

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: whether you can pay back the loan, and your willingness to repay the loan. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company developed the original FICO score to assess creditworthines. We've written a lot more about FICO here.

Credit scores only assess the info contained in your credit reports. They never take into account your income, savings, amount of down payment, or factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's willingness to pay back the lender.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score is calculated wtih both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your report to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building a credit history before they apply.

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