Your Credit Score: What it means

Before deciding on what terms they will offer you a loan, lenders need to discover two things about you: your ability to repay the loan, and if you will pay it back. To assess whether you can repay, they assess your income and debt ratio. In order to assess your willingness to pay back the mortgage loan, they look at your credit score.

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

Your credit score is a 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 dirty a word when these scores were invented as it is in the present day. Credit scoring was envisioned as a way to consider only what 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 credit inquiries are all considered in credit scoring. Your score is based on the good and the bad of your credit history. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

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 credit to calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to work on your credit history before you apply for a mortgage loan.

At Secure Mortgage Company, we answer questions about Credit reports every day. Call us: (713) 667-5472.