About Your Credit Score

Before deciding on what terms they will offer you a 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 understand 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 called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding other personal factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score reflects both the good and the bad in your credit report. Late payments count against you, but a record of paying on time will raise it.

For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your credit to assign an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage.

Tenby J. Dahman can answer questions about credit reports and many others. Call us: 3038627760.