Before lenders decide to lend you money, they must know that you are willing and able to repay that loan. To assess whether you can repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. For details on FICO, read more here.
Credit scores only consider the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to pay back the lender.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is calculated from both the good and the bad of your credit history. 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 sufficient information in your report to assign an accurate score. Some borrowers 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.
America's Money Source can answer your questions about credit reporting. Give us a call: (407) 898-7559.
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