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 pay back that mortgage loan. To assess whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only take into account the information contained in your credit reports. They don't consider income or personal characteristics. 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 consider solely that which was relevant to a borrower's willingness to pay back the lender.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative items in your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve 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 history ensures that there is enough information in your report to generate a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply.

American Mortgage Advisers, Inc can answer questions about credit reports and many others. Give us a call at 2148657442.