Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to discover two things about you: whether you can pay back the loan, and your willingness to pay back the loan. To assess whether you can repay, they look at your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they look at your credit score.

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

Your credit score comes from your repayment history. They don't consider income, savings, amount of down payment, or personal factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding other personal factors.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score considers both positive and negative items in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making 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 six months. This history ensures that there is enough information in your credit to generate a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building a credit history before they apply for a loan.

Savers Home Loans can answer your questions about credit reporting. Give us a call: (800) 974-0509.