A Score that Really Matters: Your Credit Score

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

Fair Isaac and Company formulated the first FICO score to assess creditworthines. You can find out more on FICO here.

Your credit score is a result of your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was invented as a way to consider solely that which was relevant to a borrower's willingness to pay back the lender.

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

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

Tenby J. Dahman can answer questions about credit reports and many others. Give us a call: (303) 862-7760.