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 pay back the loan. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.
The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more on FICO here.
Credit scores only assess the info contained in your credit reports. They never consider your income, savings, amount of down payment, or demographic factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's willingness to repay the lender.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score considers positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.
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 build an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply.
Tenby J. Dahman The Dahman Team can answer your questions about credit reporting. Give us a call at 3038627760.