Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan, lenders want to discover two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to repay, they use 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 on FICO here.

Credit scores only assess the information 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 bad a word when FICO scores were first invented as it is today. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's willingness to repay the lender.

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

To get a credit score, you must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your report to generate an accurate score. Should you not meet the criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage.

U.S.A. Lending, Inc. can answer your questions about credit reporting. Give us a call: 305-967-7200.