A Score that Really Matters: Your Credit Score
Before deciding on what terms they will offer you a mortgage loan (which they base on their risk), lenders must know two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess whether you can pay back the loan, they assess your income and debt ratio. To assess your willingness to pay back the loan, they consult your credit score.
The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more about FICO here.
Credit scores only consider the info contained in your credit reports. They do not take into account your income, savings, down payment amount, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's willingness to pay back the lender.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score results from both positive and negative information in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.
To get 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 calculate a score. Some people don't have a long enough credit history to get a credit score. They should build up a credit history before they apply.