Your Credit Score: What it means

Before deciding on what terms they will offer you a loan, lenders want to know two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

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

Your credit score comes from your history of repayment. They never 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 as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score considers both positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will improve it.

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 history ensures that there is sufficient information in your report to build an accurate 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 questions about credit reports and many others. Call us: 702-524-1376.