Your Credit Score: What it means

Before lenders decide to lend you money, they want to know if you're willing and able to pay back that loan. To assess your ability to repay, they assess your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed to assess a borrower's willingness to pay without considering any other irrelevant factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score results from positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will improve it.

Your 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 enough information in your report to build an accurate score. If you don't meet the criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage loan.

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