Credit Scores

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

Fair Isaac and Company formulated the original FICO score to help lenders assess creditworthiness. We've written more on FICO here.

Your credit score is a direct result of your history of repayment. They never consider your income, savings, amount of down payment, or factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to consider solely that which was relevant to a borrower's willingness to pay back a loan.

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

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 payment history ensures that there is enough information in your credit to calculate a score. Should you not meet the criteria for getting a credit score, you may need to establish a credit history prior to applying for a mortgage loan.