Your Credit Score: What it means

Before lenders decide to lend you money, they want to know if you are willing and able to pay back that mortgage loan. To understand your ability to pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more about FICO here.

Credit scores only consider the information contained in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other demographic factors.

Deliquencies, payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will raise it.

To get a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to build a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building credit history before they apply for a loan.

At North American Financial, we answer questions about Credit reports every day. Give us a call at 702-524-1376.