Your Credit Score: What it means

Before lenders decide to give you a loan, they want to know if you're willing and able to repay that loan. To understand your ability to 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 widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.

Credit scores only take into account the information in your credit reports. They don't take into account your income, savings, down payment amount, or factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding any other irrelevant factors.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score reflects both the good and the bad in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your credit to generate a score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply for a loan.

American Commerce Mortgage can answer your questions about credit reporting. Call us at 714-970-9700.