Your Credit Score: What it means

Before lenders decide to give you a loan, they want to know that you're willing and able to pay back that loan. To understand whether you can repay, they look at your income and debt ratio. To calculate your willingness to pay back the loan, they look at your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.

Your credit score comes from your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was invented as a way to consider solely what was relevant to a borrower's likelihood to pay back a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score is based on both the good and the bad in your credit history. Late payments lower your score, but consistently making future 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 payment history ensures that there is sufficient information in your report to generate a score. If you don't meet the minimum criteria for getting a credit score, you might need to establish a credit history before you apply for a mortgage loan.

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