A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to discover two things about you: whether you can pay back the loan, and your willingness to repay the loan. To assess your ability to repay, lenders look at your debt-to-income ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more about FICO here.

Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding any other demographic 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 the good and the bad in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

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

Harbor View Lending* a DBA of Megastar Financial can answer questions about credit reports and many others. Call us: (207) 571-8034.