Your Credit Score: What it means

Before lenders decide to give you a loan, they need to know that you're willing and able to repay that loan. To assess your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more on FICO here.

Credit scores only consider the information in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were first invented as it is now. Credit scoring was invented as a way to consider solely what was relevant to a borrower's willingness to repay the lender.

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

Your 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 history ensures that there is enough information in your report to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to spend a little time building up a credit history before they apply.

Milestone Mortgage, Inc. NMLS#136714 can answer questions about credit reports and many others. Call us: 3175959600.