About Your Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders need to know two things about you: whether you can repay the loan, and if you will pay it back. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.

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

Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.

Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score is calculated wtih positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.

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 enough 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.

Custom Lending Group can answer your questions about credit reporting. Give us a call at 7072522700.