Your Credit Score: What it means

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must know two things about you: whether you can repay the loan, and how committed you are to repay the loan. To understand your ability to pay back the loan, they look at 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. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.

Your credit score is a direct result of your repayment history. They don't consider income, savings, amount of down payment, or personal factors like sex race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to repay the loan without considering other personal factors.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will improve it.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This payment history ensures that there is enough information in your report to calculate an accurate score. If you don't meet the criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage.

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