Your Credit Score: What it means

Before they decide on the terms of your mortgage loan, lenders must find out two things about you: whether you can pay back the loan, and if you will pay it back. To understand your ability to pay back the loan, they assess your income and debt ratio. In order to assess your willingness to repay the mortgage loan, they look at your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more on FICO here.

Credit scores only take into account the info in your credit reports. They don't consider your income, savings, down payment amount, or factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding any other demographic factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score reflects both the good and the bad of your credit report. Late payments count against your score, but a record of paying on time will improve it.

Your report should 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 payment history ensures that there is sufficient information in your report to build a score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building credit history before they apply for a loan.

At Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234, we answer questions about Credit reports every day. Call us at 2146635355.