Your Credit Score: What it means

Before lenders decide to give you a loan, they have to know if you're willing and able to repay that mortgage loan. To understand whether you can repay, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more about FICO here.

Credit scores only consider the info contained in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were first invented as it is in the present day. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score reflects the good and the bad of your credit history. Late payments count against you, but a consistent record of paying on time will raise it.

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

Tenby J. Dahman can answer questions about credit reports and many others. Call us at 3038627760.