Credit Scores

Before lenders make the decision to give you a loan, they need to know that you are willing and able to repay that mortgage. To figure out your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to pay back the mortgage loan, they look at your credit score.

The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.

Credit scores only consider the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to repay the loan while specifically excluding any other demographic factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih 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.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is enough information in your report to assign 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 for a loan.

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