Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan, lenders need to know two things about you: your ability to pay back the loan, and if you will pay it back. To understand whether you can repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company built the first FICO score to help lenders assess creditworthines. We've written more on FICO here.

Credit scores only consider the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were first invented as it is in the present day. Credit scoring was invented as a way to consider solely what was relevant to a borrower's likelihood to pay back the lender.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score is calculated from the good and the bad of your credit history. Late payments count against you, but a record of paying on time will improve it.

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

North American Financial can answer your questions about credit reporting. Call us: 702-524-1376.