About Your Credit Score

Before they decide on the terms of your loan (which they base on their risk), lenders want to know two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To assess whether you can repay, they assess your income and debt ratio. In order 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). For details on FICO, read more here.

Credit scores only assess the info in your credit profile. They do not take into account your income, savings, amount of down payment, or personal factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was invented as a way to consider solely that which was relevant to a borrower's likelihood to repay a loan.

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 items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

Your report must have 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 credit to calculate an accurate score. Should you not meet the minimum criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.

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