Your Credit Score: What it means

Before they decide on the terms of your loan (which they base on their risk), lenders must know two things about you: whether you can repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, lenders look at 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. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written more about FICO here.

Credit scores only take into account the info in your credit profile. They never take into account your income, savings, down payment amount, or factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was invented as a way to consider solely that which was relevant to a borrower's likelihood to repay a loan.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score comes from the good and the bad of your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to assign a score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.

At Bright Vision Mortgage, we answer questions about Credit reports every day. Call us at (904) 342-3622.

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