Credit Scores

Before they decide on the terms of your loan (which they base on their risk), lenders must discover two things about you: your ability to repay the loan, and if you are willing to pay it back. To understand 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.

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

Credit scores only take into account the information in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were first invented as it is today. Credit scoring was envisioned as a way to consider solely that which was relevant to a borrower's willingness to repay the lender.

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

For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your report to generate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.

Not Your Average Lender can answer questions about credit reports and many others. Give us a call: 9722039033.