Your Credit Score: What it means

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to find out two things about you: whether you can repay the loan, and if you will pay it back. To understand whether you can repay, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company formulated the first FICO score to assess creditworthines. We've written more on FICO here.

Credit scores only assess the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other personal factors.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score considers both positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.

Your credit report should 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 payment history ensures that there is sufficient information in your credit to build an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to spend some time building a credit history before they apply.

Hometown Financial Services can answer questions about credit reports and many others. Call us: (772) 252-6724.