Credit Scoring

Before lenders decide to give you a loan, they need to know if you're willing and able to pay back that loan. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. You can find out more on FICO here.

Credit scores only consider the info in your credit reports. They don't take into account income, savings, down payment amount, or factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score reflects the good and the bad of your credit history. Late payments count against you, but a 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 payment history ensures that there is enough information in your report to generate 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.

Ashok Lakshmanan can answer questions about credit reports and many others. Call us: 6307173600.