Your Credit Score: What it means

Before they decide on the terms of your loan, lenders want to find out two things about you: your ability to repay the loan, and if you will pay it back. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To calculate your willingness to pay back the loan, they look at 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). For details on FICO, read more here.

Credit scores only consider the information in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative items 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 six months of payment history. This history ensures that there is sufficient information in your report to calculate an accurate score. Some folks don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.

North American Financial can answer your questions about credit reporting. Give us a call: 702-524-1376.