A Score that Really Matters: Your Credit Score

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Before deciding on what terms they will offer you a loan (which they base on their risk), lenders want to know two things about you: your ability to repay the loan, and if you will pay it back. To understand your ability to repay, they look at your income and debt ratio. To calculate your willingness to repay the loan, they consult your credit score.

Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthiness. We've written more about FICO here.

Credit scores only assess the information in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was developed as a way to take into account only what was relevant to a borrower's willingness to pay back a loan.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers both positive and negative items in your credit report. Late payments count against you, but a record of paying on time will raise 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 credit to calculate a score. Some people don't have a long enough credit history to get a credit score. They should build up a credit history before they apply for a loan.

At Citywide Home Loans, we answer questions about Credit reports every day. Call us: 4808226290.

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