A Score that Really Matters: The Credit Score

Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders need to find out two things about you: whether you can repay the loan, and your willingness to pay back the loan. To assess your ability to pay back the loan, lenders look at your debt-to-income ratio. In order to calculate your willingness to pay back the loan, they look at your credit score.

Fair Isaac and Company developed the original FICO score to help lenders assess creditworthiness. You can learn more on FICO here.

Credit scores only consider the information in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess willingness to pay without considering any other irrelevant factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score comes from both the good and the bad in your credit history. Late payments count against you, but a record of paying on time will raise it.

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 enough information in your credit to assign a score. Some people don't have a long enough credit history to get a credit score. They should spend some time building credit history before they apply for a loan.