A Score that Really Matters: Your Credit Score

Before they decide on the terms of your loan, lenders need to find out two things about you: whether you can pay back the loan, and how committed you are to repay the loan. To understand whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your repayment history. They do not consider income, savings, down payment amount, or personal factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's likelihood to repay a loan.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated from both the good and the bad of your credit history. Late payments lower your score, but consistently making future payments on time will improve your score.

To get a credit score, you must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your report to generate an accurate score. Some people 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.

At Executive Lending Group, LLC, we answer questions about Credit reports every day. Call us: 8165258000.

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