Your Credit Score: What it means

Before lenders decide to give you a loan, they want to know if you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, lenders 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 calculated the original FICO score to help lenders assess creditworthines. We've written more on FICO here.

Credit scores only assess the information contained in your credit reports. They do not consider your income, savings, amount of down payment, or demographic factors like gender, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was envisioned as a way to assess willingness to pay without considering any other demographic factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score results from both positive and negative information in your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your credit to calculate an accurate 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 for a loan.

Ashok Lakshmanan can answer your questions about credit reporting. Call us at 630-717-3600.