Your Credit Score: What it means

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Before lenders decide to lend you money, they must know if you are willing and able to pay back that loan. To understand your ability to repay, they look at your income and debt ratio. To calculate your willingness to pay back the mortgage loan, they consult your credit score.

Fair Isaac and Company formulated the first FICO score to assess creditworthiness. You can find out more on FICO here.

Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when FICO scores were first invented as it is now. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score is based on both the good and the bad in your credit history. Late payments lower your score, but consistently making future payments on time will improve your score.

For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your report to build a score. Some folks don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply.

Tom Mencke can answer your questions about credit reporting. Give him a call: 1-708-647-5240.