A Score that Really Matters: Your Credit Score

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

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.

Credit scores only take into account the info contained in your credit profile. They don't consider your income, savings, amount of down payment, or personal factors like sex race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to pay without considering other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers positive and negative information 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.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is enough information in your credit to build a score. If you don't meet the minimum criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage loan.

At America's Money Source, we answer questions about Credit reports every day. Call us: 4078987559.