A Score that Really Matters: Your Credit Score

Before they decide on the terms of your mortgage loan, lenders need to know two things about you: whether you can repay the loan, and your willingness to pay back the loan. To understand whether you can repay, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they look at your credit score.

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can learn more about FICO here.

Credit scores only assess the info contained in your credit profile. They do not take into account your income, savings, amount of down payment, or demographic factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed to assess willingness to pay without considering other personal factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from positive and negative items in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.

To get a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your credit to generate an accurate score. Some people 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.