A Score that Really Matters: The Credit Score

Before lenders make the decision to lend you money, they need to know if you're willing and able to pay back that loan. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. In order to calculate your willingness to repay the loan, they consult 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 (very high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only take into account the info contained in your credit reports. They don't consider your income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering other demographic factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. 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, borrowers must have an active credit account with six months of payment history. This 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 spend a little time building credit history before they apply for a loan.

Tenby J. Dahman can answer questions about credit reports and many others. Give us a call at (303) 862-7760.