Your Credit Score: What it means

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Before they decide on the terms of your loan, lenders need to find out two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to repay, they look at your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they consult your credit score.

Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthiness. We've written more on FICO here.

Credit scores only consider the information in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "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 take into account only that which was relevant to a borrower's willingness to repay a loan.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score is based on both the good and the bad in your credit history. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

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 assign an accurate 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 for a loan.

Paragon Mortgage Services, Inc. can answer your questions about credit reporting. Give us a call at 303.727.2466.