A Score that Really Matters: Your Credit Score

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must know two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To assess your ability to repay, lenders 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 called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO 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 dirty a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's likelihood to repay a loan.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score is calculated wtih both positive and negative information in your credit report. Late payments will lower your credit score, but consistently making future payments on time will raise your score.

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 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 may need to build up a credit history before they apply.

At Foxfield Financial, we answer questions about Credit reports every day. Call us: 7205988300.