A Score that Really Matters: The Credit Score
Before lenders decide to lend you money, they want to know that you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more about FICO here.
Your credit score comes from your repayment history. 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 today. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to pay back a loan.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score comes from the good and the bad in your credit history. Late payments will lower your score, but consistently making future payments on time will raise your score.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to generate a score. If you don't meet the criteria for getting a score, you may need to establish a credit history before you apply for a mortgage loan.