Your Credit Score: What it means

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

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

Your credit score is a result of your repayment history. They don't take into account your income, savings, amount of down payment, or factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding any other demographic factors.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score is calculated from the good and the bad of your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

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

Secure Mortgage Company can answer questions about credit reports and many others. Call us at (713) 667-5472.