Credit Scoring

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To assess your ability to repay, lenders assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthiness. You can learn more about FICO here.

Your credit score is a result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's likelihood to pay back a loan.

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

Your report must have 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 payment history ensures that there is sufficient information in your credit to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply.

Trevor McLean
NMLS# 1619298 can answer questions about credit reports and many others. Call us: 727-290-6863.