Your Credit Score: What it means

Before they decide on the terms of your mortgage loan, lenders want to find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to repay the mortgage loan, they consult your credit score.

The most widely used credit scores are 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.

Credit scores only consider the info contained in your credit reports. They do not take into account income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin 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 in the present day. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's likelihood to pay back a loan.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.

To get a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your credit to assign an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on a credit history prior to applying for a mortgage loan.

At American Mortgage Advisers, Inc, we answer questions about Credit reports every day. Give us a call: 2147390569.