Your Credit Score: What it means

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

The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more about FICO here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's willingness 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 is based on both the good and the bad in your credit history. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

Your credit report must have 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 enough information in your report to calculate an accurate score. If you don't meet the criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage loan.

America's Home Loans can answer your questions about credit reporting. Call us at 701.222.0100.

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