Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to find out two things about you: your ability to repay the loan, and your willingness to pay back the loan. To figure out your ability to repay, they assess your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they consult your credit score.

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

Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed as a way to consider only what was relevant to a borrower's willingness to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score comes from the good and the bad of your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your credit to build a score. If you don't meet the criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage.

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