About Your Credit Score
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Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to know two things about you: whether you can pay back the loan, and if you will pay it back. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness 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. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Credit scores only assess the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering other personal factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score comes from the good and the bad of your credit history. Late payments count against your score, but a record of paying on time will raise it.
For the agencies to calculate 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 enough 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 spend a little time building up credit history before they apply for a loan.
At Pinnacle Lending Group, Inc., we answer questions about Credit reports every day. Call us at (702) 730-2085.