A Score that Really Matters: The Credit Score
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Before they decide on the terms of your loan, lenders must know two things about you: whether you can repay the loan, and if you will pay it back. To assess your ability to repay, they look at your debt-to-income ratio. In order to assess your willingness to pay back the mortgage loan, they consult your credit score.
Fair Isaac and Company developed the original FICO score to help lenders assess creditworthiness. You can find out more about FICO here.
Credit scores only consider the info contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to consider only what was relevant to a borrower's likelihood to repay a loan.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score is based on the good and the bad of your credit history. Late payments count against you, but a consistent record of paying on time will improve it.
Your 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 generate a score. If you don't meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage loan.