Your Credit Score: What it means

Before deciding on what terms they will offer you a loan, lenders want to know two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay the loan, they consult your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. They do not consider income, savings, down payment amount, or personal factors like sex race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to pay back a loan.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score results from positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.

Your report should 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 sufficient information in your report to calculate 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 for a loan.

American Mortgage Advisers, Inc can answer your questions about credit reporting. Call us at 214-865-7442.