Your Credit Score: What it means

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

The most widely used credit scores are 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 about FICO here.

Credit scores only take into account the info contained in your credit reports. They don't take into account income, savings, amount of down payment, or demographic factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's willingness to pay back a loan.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative items 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 at least six months of payment history. This payment history ensures that there is enough information in your credit to generate an accurate 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.

At AmeriBest Mortgage, we answer questions about Credit reports every day. Call us at 3217777277.