About Your 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 repay the loan, and how committed you are to pay back the loan. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only assess the info contained in your credit profile. They don't consider your income, savings, amount of down payment, or demographic factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other personal factors.

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

For the agencies to calculate 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 credit to assign an accurate score. Some borrowers 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.