Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must discover two things about you: your ability to pay back the loan, and if you will pay it back. To figure out your ability to repay, they assess your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they consult your credit score.

Fair Isaac and Company built the first FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.

Credit scores only take into account the info in your credit reports. They do not take into account income, savings, amount of down payment, or personal factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering other personal factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score considers both positive and negative information in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your credit 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 payment history ensures that there is sufficient information in your credit to assign an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage 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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