Your Credit Score: What it means

Before they decide on the terms of your loan (which they base on their risk), lenders want to discover two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use 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). For details on FICO, read more here.

Your credit score is a result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding any other personal factors.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative items in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

Your report should contain 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 enough information in your credit to assign an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building credit history before they apply.

First Source Capital Mortgage, Inc. can answer questions about credit reports and many others. Call us: 903-482-1123.

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