Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must discover two things about you: whether you can pay back the loan, and if you will pay it back. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

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

Credit scores only take into account the information contained in your credit profile. They don't take into account your income, savings, down payment amount, or factors like sex race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider solely what was relevant to a borrower's willingness to pay back a loan.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is based on the good and the bad in your credit history. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

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

Alternative Mortgage Group can answer questions about credit reports and many others. Call us: 561-395-4264.