Your Credit Score: What it means

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must know two things about you: your ability to repay the loan, and if you will pay it back. To assess whether you can pay back the loan, they look at your income and debt ratio. To calculate your willingness to repay the mortgage loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more on FICO here.

Credit scores only assess the information in your credit profile. They do not consider income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's likelihood to repay a loan.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated from 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.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of 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 spend some time building up credit history before they apply for a loan.

At Saab Mortgage, we answer questions about Credit reports every day. Call us at 703-288-0777.

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