Your Credit Score: What it means

Before lenders make the decision to give you a loan, they must know if you're willing and able to pay back that loan. To assess your ability to pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

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

Your credit score comes from your history of repayment. They don't consider income, savings, down payment amount, or demographic factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to pay without considering any other personal factors.

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

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 history ensures that there is sufficient information in your report to generate a score. Should you not meet the criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage.

Tenby J. Dahman The Dahman Team can answer your questions about credit reporting. Give us a call: 3038627760.