Your Credit Score: What it means

Before deciding on what terms they will offer you a loan, lenders need to find out two things about you: your ability to repay the loan, and your willingness to repay the loan. To assess your ability to pay back the loan, 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 Fair Isaac & Company, a financial analytics agency, developed. 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 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 first invented as it is today. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering other irrelevant factors.

Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score is calculated wtih both positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

To get a credit score, you must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your report to build a score. Some people don't have a long enough credit history to get a credit score. They should spend some time building credit history before they apply.

Custom Lending Group can answer your questions about credit reporting. Call us: 7072522700.