Your Credit Score: What it means

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must know two things about you: your ability to pay back the loan, and if you will pay it back. To understand your ability to repay, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company calculated the first FICO score to assess creditworthines. For details on FICO, read more here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding other personal factors.

Deliquencies, derogatory payment behavior, current 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 report. Late payments count against you, but a consistent record of paying on time will improve it.

Your credit 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 report to generate an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building up credit history before they apply for a loan.

Hill Valley Financial Services Inc. can answer questions about credit reports and many others. Call us: 503-657-3311.