Your Credit Score: What it means

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

Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were first invented as it is today. Credit scoring was invented as a way to consider only what was relevant to a borrower's likelihood to repay a loan.

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 comes from both the good and the bad of your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

To get a credit score, you must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your report to assign a score. Some folks don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.

At Harbor View Lending* a DBA of Megastar Financial, we answer questions about Credit reports every day. Call us: (207) 571-8034.