Your Credit Score: What it means

Before deciding on what terms they will offer you a loan, lenders must find out two things about you: whether you can repay the loan, and your willingness to repay the loan. To understand whether you can pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to repay the loan, they consult your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only take into account the info 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 FICO scores were first invented as it is now. Credit scoring was developed as a way to consider only what was relevant to a borrower's willingness to pay back the lender.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score is calculated wtih positive and negative items in your credit report. Late payments lower your credit 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 six months of payment history. This history ensures that there is enough information in your report to generate an accurate score. If you don't meet the criteria for getting a credit score, you might need to work on a credit history prior to applying for a mortgage.

Foxfield Financial can answer your questions about credit reporting. Call us at 720-598-8300.

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