Your Credit Score: What it means
Before lenders decide to give you a loan, they need to know if you're willing and able to repay that loan. To understand whether you can repay, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. We've written a lot more about FICO here.
Credit scores only consider the info contained in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score is calculated wtih both positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
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 payment history ensures that there is enough information in your report to build an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to work on a credit history before you apply for a mortgage loan.
At The Mortgage Exchange Service LLC, we answer questions about Credit reports every day. Call us at 703.255-5810.