Credit Scores

Before they decide on the terms of your loan (which they base on their risk), lenders need to find out two things about you: your ability to repay the loan, and your willingness to pay back the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

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

Credit scores only assess the information in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other personal factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih both positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will improve it.

Your report should have 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 credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.

Pacificwide Lending can answer your questions about credit reporting. Give us a call: 9254610500.