Your Credit Score: What it means

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders want to find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To assess your ability to repay, they look at your income and debt ratio. To calculate your willingness to pay back the loan, they consult your credit score.

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

Credit scores only assess the information in your credit profile. They don't take into account income, savings, amount of down payment, or demographic factors like gender, race, national origin or marital status. 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.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih both positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will raise it.

Your report must 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 payment history ensures that there is sufficient information in your credit to assign a score. If you don't meet the minimum criteria for getting a score, you may need to establish your credit history before you apply for a mortgage.

Harbor View Lending* a DBA of Megastar Financial can answer your questions about credit reporting. Give us a call at (207) 571-8034.