Your Credit Score: What it means

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Before lenders decide to lend you money, they want to know that you're willing and able to pay back that mortgage loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company formulated the first FICO score to assess creditworthines. We've written more about FICO here.

Credit scores only take into account the information contained in your credit profile. They don't consider income or personal characteristics. 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 developed as a way to take into account solely that which was relevant to a borrower's willingness to pay back a loan.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score reflects both the good and the bad in your credit report. Late payments count against your score, but a consistent 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 six months. This history ensures that there is enough information in your report to assign an accurate score. If you don't meet the criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage loan.

Steve Whittaker can answer questions about credit reports and many others. Call us at 8007903317.