About Your Credit Score
Before they decide on the terms of your loan (which they base on their risk), lenders want to find out two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. In order to assess your willingness to repay the loan, they consult your credit score.
Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.
Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding other personal factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scoring. Your score is calculated from the good and the bad of your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is enough information in your credit to generate a score. Some folks 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.
Harbor View Lending* a DBA of Megastar Financial can answer your questions about credit reporting. Call us at (207) 571-8034.