Credit Scoring

Before they decide on the terms of your loan (which they base on their risk), lenders need to find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

Fair Isaac and Company built the original FICO score to assess creditworthines. You can learn more on FICO here.

Credit scores only take into account the info in your credit profile. They never take into account income, savings, amount of down payment, or factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were first invented as it is today. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's willingness to repay a loan.

Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score results from positive and negative items in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.

Your credit report should have 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 history ensures that there is sufficient information in your report 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 some time building credit history before they apply for a loan.

Capacity Lending, LLC can answer your questions about credit reporting. Give us a call at 469-640-0400.

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