Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan, lenders must discover two things about you: your ability to pay back the loan, and if you are willing to pay it back. To figure out 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 FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only take into account the info contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to take into account only what was relevant to a borrower's likelihood to repay a loan.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated from both the good and the bad of your credit history. Late payments count against you, but a consistent record of paying on time will improve it.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your credit to build a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply.

At Executive Lending Group, we answer questions about Credit reports every day. Give us a call: 4056158543.