Your Credit Score: What it means

Before they decide on the terms of your loan (which they base on their risk), lenders must discover two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To figure out your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to pay back 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 (very 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 do not take into account income, savings, amount of down payment, or demographic factors like sex race, national origin 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 pay back the lender.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score is calculated wtih positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

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 enough information in your credit to build a score. If you don't meet the minimum criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage loan.

At Baywide Funding Corporation, we answer questions about Credit reports every day. Give us a call: 650 428 0234.