Your Credit Score: What it means

Before lenders make the decision to lend you money, they want to know if you're willing and able to pay back that loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. In order to assess your willingness to repay the mortgage loan, they look at your credit score.

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

Credit scores only consider the information contained in your credit reports. They do not take into account your income, savings, down payment amount, or personal factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other demographic factors.

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

Your credit 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 history ensures that there is sufficient information in your report to assign a score. If you don't meet the minimum criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage.

At Not Your Average Lender, we answer questions about Credit reports every day. Call us: 9722039033.