Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to know two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.

Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. We've written more about FICO here.

Credit scores only consider the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other demographic factors.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score results from positive and negative items in your credit report. Late payments count against you, but a record of paying on time will raise it.

Your credit 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 history ensures that there is enough information in your credit to assign a score. If you don't meet the minimum criteria for getting a score, you might need to establish your credit history before you apply for a mortgage.

At North American Financial, we answer questions about Credit reports every day. Give us a call: 702-524-1376.