Your Credit Score: What it means

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Before deciding on what terms they will offer you a loan, lenders need to know two things about you: your ability to repay the loan, and your willingness to pay back the loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess how willing you are 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. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only consider the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score comes from the good and the bad of your credit history. Late payments will lower your score, but consistently making future payments on time will raise your score.

Your report should 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 payment history ensures that there is sufficient information in your report to build a score. Should you not meet the minimum criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage.

All Money.com Inc. can answer questions about credit reports and many others. Give us a call at 415-731-3100.