Before they decide on the terms of your loan (which they base on their risk), lenders want to discover two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To assess whether you can pay back the loan, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company built the original FICO score to assess creditworthines. We've written 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. "Profiling" was as dirty a word when FICO scores were invented as it is in the present day. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding any other personal factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all considered in credit scores. Your score reflects both the good and the bad of your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
To get a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your report to generate a score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.
First Community Bank of Central Al. can answer your questions about credit reporting. Call us: (334) 285-8850.