Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to discover two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To assess whether you can repay, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company built the first FICO score to assess creditworthines. We've written a lot more on FICO here.

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

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will raise it.

To get a credit score, borrowers 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 generate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on a credit history prior to applying for a mortgage.

Southwest Funding #841 can answer your questions about credit reporting. Call us at (512) 291-6100.