About Your Credit Score

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

Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthiness. We've written more on FICO here.

Credit scores only consider the info contained in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's likelihood to pay back a loan.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score considers both positive and negative information in your credit report. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

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