Your Credit Score: What it means

Before lenders make the decision to lend you money, they must know that you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.

Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. You can find out more about FICO here.

Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed as a way to consider only that which was relevant to a borrower's likelihood to pay back the lender.

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

Your credit report must contain 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 payment history ensures that there is sufficient information in your report to generate a score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building up credit history before they apply.

At Ashok Lakshmanan, we answer questions about Credit reports every day. Call us: 6307173600.