About Your Credit Score

Before they decide on the terms of your loan, lenders need to find out two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To assess your ability to pay back the loan, 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 FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more on FICO here.

Your credit score is a direct result of your history of repayment. They do not take into account income, savings, down payment amount, or personal factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to take into account solely what was relevant to a borrower's likelihood to repay the lender.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score is calculated from the good and the bad of your credit history. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.

For the agencies to calculate a credit score, you must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your report to assign an accurate score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building a 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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