Your Credit Score: What it means

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Before deciding on what terms they will offer you a loan, lenders want to know two things about you: whether you can repay the loan, and if you will pay it back. To assess your ability to pay back the loan, they look at your debt-to-income ratio. In order to calculate your willingness to pay back 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 (very high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score is a result of your repayment history. They do not take into account your income, savings, down payment amount, or factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other irrelevant factors.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score reflects both the good and the bad in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

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 enough information in your credit to calculate a score. Some folks don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.

Crossline Capital can answer your questions about credit reporting. Give us a call at 949-380-6837.