Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must know two things about you: your ability to pay back the loan, and if you are willing to pay it back. To understand your ability to pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.

Fair Isaac and Company developed the first FICO score to assess creditworthines. You can learn more on FICO here.

Credit scores only take into account the info in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding other demographic factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is based on the good and the bad in your credit history. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This history ensures that there is sufficient information in your credit to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building credit history before they apply.

C2 Financial can answer your questions about credit reporting. Call us at 805-636-9222.