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: your ability to pay back the loan, and if you are willing to pay it back. To assess your ability to repay, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

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

Credit scores only take into account the information contained in your credit reports. They do not take into account income, savings, down payment amount, or personal factors like sex race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is today. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering other irrelevant factors.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score results from both positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

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 payment history ensures that there is sufficient information in your credit to build a score. Some people don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.

Hill Valley Financial Services Inc. can answer your questions about credit reporting. Give us a call: 503-657-3311.