Your Credit Score: What it means

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Before they decide on the terms of your loan (which they base on their risk), lenders need to find out two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use 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 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's willingness to pay back a loan.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated with both positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.

Your credit report must have 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 history ensures that there is enough information in your credit to build an accurate score. Should you not meet the criteria for getting a credit score, you may need to work on a credit history before you apply for a mortgage loan.

Felge International, Inc., Dba -The Mortgage Warehouse - NMLS3185 can answer questions about credit reports and many others. Give us a call at (509) 892-9014.