Your Credit Score: What it means

Before they decide on the terms of your loan, lenders must know two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To understand your ability to pay back the loan, they look at your income and debt ratio. To assess how willing you are 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). We've written more about FICO here.

Credit scores only consider the information contained in your credit profile. They never consider income, savings, amount of down payment, or factors like sex race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was developed to assess willingness to pay without considering any other demographic factors.

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

Your report must contain 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 credit to build a score. If you don't meet the minimum criteria for getting a score, you may need to establish your credit history before you apply for a mortgage.

Kelly Mortgage Center can answer questions about credit reports and many others. Call us at 949-235-3507.