Your Credit Score: What it means

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

Fair Isaac and Company developed the original FICO score to assess creditworthiness. We've written a lot more on FICO here.

Your credit score comes from your repayment history. They don't take into account income, savings, down payment amount, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering any other demographic factors.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is calculated with positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

To get a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your report to assign 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.

Mark Campbell can answer your questions about credit reporting. Call us at 7274926100.