Your Credit Score: What it means

Before they decide on the terms of your loan, lenders must know two things about you: your ability to repay the loan, and your willingness to repay the loan. To understand whether you can repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthines. For details on FICO, read more here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was invented as a way to consider solely that which was relevant to a borrower's willingness to pay back the lender.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score is calculated wtih both positive and negative items in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.

Your credit report must 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 payment history ensures that there is sufficient information in your report to calculate a score. Should you not meet the criteria for getting a score, you may need to work on a credit history before you apply for a mortgage loan.

VALoansMN.com can answer questions about credit reports and many others. Give us a call at (612) 240-9922.