About Your Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders want to discover 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 your willingness to repay, they use your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were first invented as it is in the present day. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding any other personal factors.

Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score is calculated from the good and the bad in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.

For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This history ensures that there is enough information in your credit to build a score. Some folks don't have a long enough credit history to get a credit score. They should spend a little time building a credit history before they apply for a loan.

Southwest Funding #841
Company NMLS # 303440 can answer your questions about credit reporting. Give us a call: 5122916100.