A Score that Really Matters: Your Credit Score
Before deciding on what terms they will offer you a mortgage loan, lenders need to discover two things about you: whether you can repay the loan, and if you will pay it back. To figure out your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most widely 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 don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when FICO scores were invented as it is now. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering other irrelevant factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score results from positive and negative information in your credit report. Late payments lower your score, but consistently making future payments on time will improve your score.
Your report should 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 enough information in your report to build a score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend a little time building a credit history before they apply for a loan.