A Score that Really Matters: Your Credit Score

Before lenders make the decision to lend you money, they must know if you are willing and able to pay back that mortgage loan. To assess your ability to repay, they look at your debt-to-income ratio. To calculate your willingness to repay the loan, they look at your credit score.

Fair Isaac and Company built the first FICO score to help lenders assess creditworthines. You can find out more about FICO here.

Credit scores only take into account the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess willingness to pay without considering other demographic factors.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is calculated from the good and the bad of your credit report. Late payments will lower your credit score, but consistently making future payments on time will improve your score.

Your report should have 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 credit to build an accurate score. Should you not meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.

North American Financial can answer your questions about credit reporting. Give us a call at 702-524-1376.