A Credit Score is a numerical value used by lenders to rate individuals according to their most probable ability to repay a debt such as a mortgage. The score measures the relative degree of risk a potential borrower represents to the lender or investor. The most widely used system of credit scoring used in the United States is the Fair Isaac Credit Rating Score (FICO).

Parameters  
The Fair Isaac Credit Rating score is based on your past credit history, the amount of credit you have outstanding, the amount of credit you have available, and other factors.  There are 45 to 85 factors considered in making a credit score according to what system is used.  Of these factors 12 are considered most important.  They are: (1) Presence of adverse public records and collection items, (2) Time on your present job, (3) Occupation,  (4) Time at present address, (5) the type of credit you have established,  (6) are you a homeowner, (7) the number of recent inquiries, (8) Age, (9) Your search for and acquisition of new credit, (10) Length of time credit has been established,  (11) past payment history,  (12) Amount and type of credit owing at present.  Your credit score will vary at different times depending upon additions or changes to your credit history.

Development
The information from which the credit score is based comes from information you supply to various credit card, stores and lending agencies.  These items are typically the same items an underwriter would use to make a credit decision. This information is compiled in various credit bureaus and shared by them with other agencies and companies.  Whenever you write your personal information on an application for credit or for the Federal Government you must consider the possibility that the information will be shared with others.

Ranges                                                                                                                                                                      FICO scores range  from 375 to 900.  Theoretically, the higher the score, the more likely the individual is to make their payments.  For mortgages a credit score of 620 is considered adequate.  Credit scores between 560 and 620 are considered borderline. If your credit score is below 560 the mortgage company will want you to undergo a certain amount of counseling, savings, and making arrangements to pay some past due debts.

Categories
Credit scoring will place borrowers in one of three general categories:

• First, a borrower with a score 680 and above may be considered an A+ loan. The loan will involve basic underwriting, probably through a "computerized automated underwriting" system and be completed within minutes. Borrowers falling into this category may have a good chance to obtain a lower rate of interest and close their loan within a couple of days.

• Second, a score below 680 but above 620 may indicate underwriters will take a closer look at the file in determining potential risks. Borrowers falling into this category may find the process and underwriting time no different than in the past. Supplemental credit documentation and letters of explanation may be required before an underwriting decision is made. Loans within this FICO scoring range may allow borrowers to obtain "A" pricing, but loan closing may still take several days or weeks as it does now.

• Third, borrowers with a score below 620 may find themselves locked out of the best loan rates and terms offered. Mortgage professionals may divert these borrowers to alternate funding sources other than FNMA and FHLMC. Borrowers may find the loan terms and conditions less attractive than the "A" loans, and it may take some time before a suitable funding source is located.

Every score is accompanied by a maximum of four reason codes. Reason codes identify the most significant reason that a consumer did not score higher. They are not red flags. Consumers with scores in the 800 range get reason codes just as consumers with scores in the 500 range. The reason codes may be used in describing to the consumer the reason for adverse action. 

Scores are not part of the credit file and are not covered by the Fair Credit Reporting Act. Scores, if disclosed to the consumer, must be related to the credit file - using the reason codes - since the score has no meaning in itself; the meaning or risk level is assigned by the lender and the investor.