A Score that Really Matters: The Credit Score

Before lenders decide to lend you money, they want to know if you're willing and able to repay that loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.

Your credit score comes from your history of repayment. They never consider your income, savings, down payment amount, or personal factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to pay back the lender.

Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score comes from both the good and the bad of your credit history. Late payments count against you, but a record of paying on time will raise 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 sufficient information in your report to assign 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 for a loan.

Custom Lending Group can answer your questions about credit reporting. Give us a call at (707) 252-2700.