A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a loan, lenders must discover two things about you: whether you can repay the loan, and if you will pay it back. To assess your ability to repay, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more about FICO here.

Credit scores only consider the info in your credit reports. They do not take into account 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 like these. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding other personal factors.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score reflects the good and the bad of your credit history. Late payments lower your credit score, but consistently making future payments on time will raise your score.

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 history ensures that there is sufficient information in your report to calculate a score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.

Custom Lending Group can answer questions about credit reports and many others. Give us a call at 7072522700.