A Score that Really Matters: The Credit Score

Before they decide on the terms of your loan, lenders must discover two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to repay, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot 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. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was invented as a way to consider solely what was relevant to a borrower's likelihood to repay a loan.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score is calculated wtih positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.

Your report should contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This payment history ensures that there is enough information in your credit to build a score. Some people don't have a long enough credit history to get a credit score. They should build up a credit history before they apply for a loan.

Executive Lending Group can answer questions about credit reports and many others. Call us at 4056158543.


Executive Lending Group

A Division of 1st Capital Mortgage LLC

2401 Tee Circle, STE 102B
Norman, OK 73069