Before deciding on what terms they will offer you a loan, lenders want to discover two things about you: whether you can pay back the loan, and if you will pay it back. To figure out your ability to repay, they look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. We've written more about FICO here.
Your credit score is a direct result of your history of repayment. They do not consider income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to pay back the lender.
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 credit report must 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 report to build a score. Some people don't have a long enough credit history to get a credit score. They should spend a little time building credit history before they apply.
At Executive Lending Group, LLC, we answer questions about Credit reports every day. Call us: (816) 525-8000.
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