Credit Scores

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: whether you can pay back the loan, and your willingness to repay the loan. To understand your ability to repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only assess the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is in the present day. Credit scoring was invented as a way to consider solely what was relevant to a borrower's likelihood to repay the lender.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score is calculated wtih both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Your report must 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 build a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.

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