Credit Scoring

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Before they decide on the terms of your loan, lenders must find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To assess your ability to repay, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Your credit score is a direct result of your repayment history. They never take into account your income, savings, down payment amount, or factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to repay the loan without considering any other personal factors.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scoring. Your score comes from the good and the bad of your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

To get a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is sufficient 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 may need to build up a credit history before they apply for a loan.

Financial Brokers of America can answer questions about credit reports and many others. Call us at 562-696-3139.