Your Credit Score: What it means

Before deciding on what terms they will offer you a loan, lenders want 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 repay, lenders look at 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.

Credit scores only consider the information in your credit reports. They don't take into account your income, savings, down payment amount, or factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was invented as a way to take into account only what was relevant to a borrower's willingness to pay back the lender.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score reflects both the good and the bad in your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.

To get a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to calculate an accurate score. Some people don't have a long enough credit history to get a credit score. They should spend a little time building up credit history before they apply for a loan.

First Community Bank of Central Al. can answer questions about credit reports and many others. Call us at (334) 285-8850.

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