Your Credit Score: What it means

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Before they decide on the terms of your mortgage loan, lenders want to know two things about you: whether you can pay back the loan, and if you are willing to pay it back. To understand your ability to repay, they assess your income and debt ratio. To calculate your willingness to repay the mortgage loan, they consult your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more on 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 demographic factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to repay the loan without considering other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score results from positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making 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 enough information in your credit to build an accurate score. Should you not meet the minimum criteria for getting a credit score, you may need to establish a credit history prior to applying for a mortgage loan.

Liberty Mortgage Associates Inc. can answer your questions about credit reporting. Give us a call: 877-799-4015.