About Your Credit Score

Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to find out two things about you: your ability to pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.

The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.

Your credit score comes from your repayment history. They don't consider income, savings, down payment amount, or personal factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed to assess willingness to pay while specifically excluding any other personal factors.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score comes from the good and the bad of 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 credit report must contain 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 an accurate score. Should you not meet the criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage loan.