Your Credit Score: What it means

Before lenders decide to lend you money, they have to know if you are willing and able to pay back that loan. To assess your ability to repay, they assess your debt-to-income ratio. To assess your willingness to pay back the loan, they consult your credit score.

The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written a lot more on FICO here.

Credit scores only assess the information in your credit reports. They do not consider your income, savings, amount of down payment, or factors like sex ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative information in your credit report. Late payments lower your credit score, but consistently making future payments on time will raise your score.

Your report should contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This payment history ensures that there is sufficient information in your report to build a score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.

At North American Financial, we answer questions about Credit reports every day. Call us: 702-524-1376.