Your Credit Score: What it means

Before lenders decide to give you a loan, they must know that you're willing and able to pay back that mortgage loan. To assess whether you can pay back the loan, they assess 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 called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more on FICO here.

Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were first invented as it is now. Credit scoring was developed to assess willingness to repay the loan without considering any other demographic factors.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score reflects both the good and the bad of your credit history. Late payments will lower your score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your credit to assign an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building up credit history before they apply.

At Hill Valley Financial Services Inc., we answer questions about Credit reports every day. Call us: 503-657-3311.