Your Credit Score: What it means

Before lenders decide to lend you money, they need to know if you are willing and able to repay that mortgage loan. To assess your ability to repay, they look at your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.

Credit scores only consider the info contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is in the present day. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score results from both positive and negative information in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, you 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 generate a score. If you don't meet the minimum criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage.

Greystone Loans, Inc. can answer questions about credit reports and many others. Give us a call: 9094671090.