Credit Scoring

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

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more on FICO here.

Your credit score comes from 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 invented as a way to consider solely what was relevant to a borrower's likelihood to pay back the lender.

Past delinquencies, payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score considers positive and negative items in your credit report. Late payments will 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 six months of payment history. This payment history ensures that there is sufficient information in your report to build an accurate score. Some people don't have a long enough credit history to get a credit score. They may need to spend some time building a credit history before they apply for a loan.

Pacific Loan Brokers can answer your questions about credit reporting. Give us a call at 877-310-6200.

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