Credit Scores

Before deciding on what terms they will offer you a loan, lenders must know two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To assess whether you can pay back the loan, they look at your income and debt ratio. In order to assess your willingness to pay back the loan, they look at your credit score.

Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. We've written more about FICO here.

Credit scores only consider the information in your credit profile. They do not take into account income, savings, amount of down payment, or factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was developed to assess willingness to repay the loan while specifically excluding other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated from both the good and the bad of your credit history. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.

To get a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is enough information in your report to calculate a score. Some folks don't have a long enough credit history to get a credit score. They may need to spend some time building up a credit history before they apply for a loan.

At Harbor View Lending* a DBA of Megastar Financial, we answer questions about Credit reports every day. Give us a call: (207) 571-8034.