Credit Scoring

Before lenders make the decision to give you a loan, they need to know if you're willing and able to repay that loan. To assess your ability to pay back the loan, they look at your income and debt ratio. To calculate your willingness to repay the loan, they consult your credit score.

Fair Isaac and Company built the original FICO score to assess creditworthines. You can learn more on FICO here.

Your credit score is a direct result of your repayment history. They do not take into account your income, savings, amount of down payment, or personal factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering other irrelevant factors.

Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score is calculated from both the good and the bad of your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

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 payment history ensures that there is sufficient information in your report to generate an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They should spend a little time building up credit history before they apply for a loan.

Ann Jones (512) 422-9036 can answer questions about credit reports and many others. Give us a call: (512) 422-9036.

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