Your Credit Score: What it means

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Before lenders decide to give you a loan, they must know if you are willing and able to repay that mortgage. To assess whether you can pay back the loan, they look at your income and debt ratio. In order to assess your willingness to pay back the loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more on FICO here.

Your credit score comes from your repayment history. They don't take into account your income, savings, amount of down payment, or factors like sex race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were first invented as it is today. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to repay a loan.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score reflects the good and the bad in your credit report. Late payments count against you, but a record of paying on time will raise it.

Your report must 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 payment history ensures that there is enough information in your credit to generate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to establish a credit history before you apply for a mortgage loan.

Directions Equity can answer questions about credit reports and many others. Call us: 2108424185.