How Lenders Use Your Credit Score and Credit History

Written By: Leah Chester-Davis & Carrie Barnhardt

A person’s credit score gives a lender important information but the credit history is key too, says Carrie Barnhardt, Farm Credit loan officer with the Concord Branch.

So what is a good credit score and how does a lender learn about your credit history? We break that down into two parts.

Pay Attention to Your Credit Score

Credit scores depend on several things such as whether you pay your bills on time, the number of accounts you have, the length of time you’ve had them, and the amount of debt you’re carrying or how much you owe. When you hear someone mention a FICO score, they are often speaking about credit scores, which are used by the three credit bureaus to calculate a borrower’s risk.  (FICO stands for Fair Isaac Corporation, the company that produces consumer credit scores.)

FICO scores range between 300 and 850. Scores above 650 are generally considered good. Scores below 620 are not and may result in difficulty in getting a loan. Lenders use credit scores to help assess risk when it comes to lending to a particular person. But the credit score isn’t the only valuable piece of information, explains Barnhardt. “A credit score gives me a rough number but until I look at the credit history I don’t get the full story, and everybody has a story.”

Barnhardt says that while Credit Karma is a good tool and will give you an idea of what your score will be, it is not used for big lending decisions.

Build a Strong Credit History

Three credit bureaus – Equifax, Experian, TransUnion – track credit history of U.S. consumers. That includes all the elements that go into your credit scores over a period of time. Lenders often use at least one of the three credit bureaus to learn more about a borrower’s history. The Fair Credit Reporting Act (FCRA) allows each American citizen to one free credit report per year from all three credit bureaus. You can access your reports at the Federal Trade Commission’s secure website “Be sure to pull your report and if you see an incorrect late payment, medical collection or other activity that you know isn’t yours, gather proof and contact the credit bureau to have it removed from your report,” advises Barnhardt.

Credit histories can provide lenders useful information. For example, one couple seeking a loan had a credit history that showed unpaid medical bills for four years but the trend on the report the past three years was on-time payments. When Barnhardt inquired about the period with unpaid bills she learned about an illness in the family that resulted in major medical bills and extra debt. The credit history demonstrated that when the family got over their hardship the trend on their credit history reflected improvement. That made a big difference in the lender considering their loan request.