Your credit score is just as much a part of your financial health as your blood pressure is of your overall wellness. But just as your blood pressure isn’t the only measure of healthiness, your FICO score isn’t the only thing lenders consider to determine your creditworthiness.
“Your FICO score does play a major part in the decision,” says Julie Bruning, Vice President of Consumer Lending at SAC Federal Credit Union. “But there are many other aspects to the application that we look at, including your employment situation and any extenuating conditions. You are more than just a score.”
What goes into my credit score?
Here’s a quick refresher on FICO: the score is the standard measure of creditworthiness in the United States, and it’s used in 90% of lending decisions. The score is determined by several factors, including:
- Your length of credit history
- The amount you owe
- Types of credit you use
- Your payment history
Your FICO score reflects your habits – good or bad – and is an indication of where you stand in relation to risk. So, lenders consider the score when determining an interest rate for a loan. If you have a low FICO store, the risk of default increases, so your interest rate is likely to be higher than it would be for someone who has a high FICO score.
Despite the importance of your FICO score, there are plenty of other factors a lender can look at to determine your creditworthiness:
- Scores from other reporting agencies. In addition to your FICO score, lenders may check your scores with Experian, Equifax, and TransUnion.
- Extenuating circumstances. Your score may have taken a hit during a period of unemployment, and even if you’re back on your feet and paying off your debt quickly, that turnaround may not yet be reflected in your score, so it’s important to be upfront with your lender.
- Efforts you’ve made to pay in a timely manner. Lenders want to know that you can make payments on time before they’ll give you a loan, so even if it doesn’t reflect right away in your score, make sure you’re keeping up with regular payments.
When applying for loans, no matter what type they might be, it’s important to have a conversation with your lender about any issues that might be affecting your credit negatively. The more they know, the better they’ll be able to put together a complete picture of your creditworthiness.
For more tips on building, maintaining, and repairing credit, download our free e-book, The Building Blocks of Credit.