About Your Credit Score

Before they decide on the terms of your loan, lenders must discover two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess how willing you are 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). You can learn more on FICO here.

Your credit score is a direct result of your history of repayment. They do not take into account income, savings, amount of down payment, or personal factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other irrelevant factors.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scoring. Your score is calculated from the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will raise it.

To get a credit score, you must have an active credit account with six months of payment history. This 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 credit history before they apply for a loan.