Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan, lenders want to find out two things about you: your ability to repay the loan, and how committed you are to repay the loan. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.

Credit scores only assess the information contained in your credit reports. They don't consider income or personal characteristics. 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 envisioned as a way to assess willingness to repay the loan while specifically excluding other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score comes from both the good and the bad of your credit history. Late payments lower your score, but consistently making future payments on time will raise 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 payment history ensures that there is enough information in your credit to assign an accurate score. If you don't meet the criteria for getting a credit score, you may need to work on your credit history before you apply for a mortgage.

Foxfield Financial can answer questions about credit reports and many others. Call us at 720-598-8300.