Your Credit Score: What it means

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

Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthiness. We've written more on FICO here.

Your credit score comes from your repayment history. They don't take into account income, savings, down payment amount, or demographic factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account solely that which was relevant to a borrower's likelihood to repay the lender.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score comes from both the good and the bad of your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to generate an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.

CU Mortgage Division can answer questions about credit reports and many others. Call us at 360-539-4687.