Your Credit Score: What it means

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Before they decide on the terms of your loan, lenders need to discover two things about you: your ability to pay back the loan, and if you are willing to pay it back. To assess your ability to repay, 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 FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.

Your credit score is a result of your repayment history. They never take into account income, savings, down payment amount, or factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other personal factors.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score is based on both the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will improve it.

Your credit report should 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 sufficient information in your credit to build an accurate score. Should you not meet the minimum criteria for getting a credit score, you may need to work on a credit history before you apply for a mortgage.

Western Reliance Funding Group, Inc. can answer your questions about credit reporting. Call us at 800.465.1404.1002.