A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to discover two things about you: whether you can repay the loan, and if you will pay it back. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay the mortgage loan, they look at your credit score.

Fair Isaac and Company built the original FICO score to assess creditworthines. For details on FICO, read more 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. "Profiling" was as bad a word when FICO scores were invented as it is in the present day. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's willingness to repay a loan.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score reflects both the good and the bad in your credit report. Late payments 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, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your credit to assign an accurate score. If you don't meet the criteria for getting a score, you might need to work on a credit history prior to applying for a mortgage loan.

American Mortgage Advisers, Inc can answer questions about credit reports and many others. Give us a call at 2147390569.