A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a loan, lenders must find out two things about you: whether you can pay back the loan, and if you will pay it back. To assess your ability to pay back the loan, they look at your debt-to-income ratio. In order to assess your willingness to repay the loan, they consult your credit score.

Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. We've written a lot more on FICO here.

Credit scores only consider the info contained in your credit profile. They don't consider income, savings, amount of down payment, or factors like sex race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is in the present day. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's likelihood to repay the lender.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative information in your credit report. Late payments count against your score, 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 six months of payment history. This history ensures that there is enough information in your credit to assign an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They should spend a little time building up credit history before they apply for a loan.

America's Money Source can answer questions about credit reports and many others. Call us at 4078987559.


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