About Your Credit Score

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

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more on FICO here.

Credit scores only take into account the information in your credit profile. They do not consider your income, savings, amount of down payment, or personal factors like sex ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess willingness to repay the loan without considering other personal factors.

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

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