Your Credit Score: What it means

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

Fair Isaac and Company developed the first FICO score to help lenders assess creditworthines. You can find out more on FICO here.

Credit scores only consider the info in your credit profile. 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 these scores were invented as it is today. Credit scoring was developed to assess willingness to pay while specifically excluding other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih positive and negative information in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your report to build a score. If you don't meet the criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage loan.

Foxfield Financial can answer questions about credit reports and many others. Give us a call: 720-598-8300.

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