Credit Scores

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

Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. You can find out more on FICO here.

Credit scores only take into account the info in your credit reports. They don't consider income, savings, down payment amount, or factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was invented as a way to take into account only what was relevant to a borrower's willingness to pay back a loan.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is calculated from both the good and the bad in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

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

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