Your Credit Score: What it means

Before lenders decide to lend you money, they want to know if you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.

Fair Isaac and Company formulated the original FICO score to assess creditworthines. For details on FICO, read more here.

Credit scores only take into account the info contained in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's likelihood to pay back a loan.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score is based on the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will improve it.

Your credit report should 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 payment history ensures that there is sufficient information in your credit to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply for a loan.

America's Home Loans can answer questions about credit reports and many others. Give us a call at 701.222.0100.

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