Your Credit Score: What it means

Before they decide on the terms of your loan (which they base on their risk), lenders must know two things about you: your ability to repay the loan, and if you are willing to pay it back. To understand whether you can repay, they look at your income and debt ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.

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

Credit scores only take into account the information in your credit reports. They don't take into account income, savings, down payment amount, or demographic factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was envisioned as a way to assess willingness to pay without considering any other demographic factors.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is based on the good and the bad in your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

To get a credit score, you must have an active credit account with at least six months of payment history. 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 should spend some time building a credit history before they apply for a loan.

At American Mortgage Advisers, Inc, we answer questions about Credit reports every day. Give us a call at 214-865-7442.