Credit Scoring

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must find out two things about you: your ability to pay back the loan, and if you will pay it back. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only take into account the information in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to repay the loan while specifically excluding any other personal factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad of your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

Your credit report should 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. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.

Custom Lending Group can answer questions about credit reports and many others. Call us at (707) 252-2700.