Before lenders make the decision to give you a loan, they have to know if you're willing and able to repay that loan. To assess whether you can repay, they look at your income and debt ratio. To calculate your willingness to pay back the loan, they consult 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 (very high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only consider the information in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was developed as a way to take into account only what was relevant to a borrower's likelihood to repay the lender.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score results from positive and negative items in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.
Your 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 history ensures that there is sufficient information in your report to build a score. Some borrowers 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: (707) 252-2700.