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Before they decide on the terms of your mortgage loan, lenders must know two things about you: whether you can pay back the loan, and how committed you are to pay back the loan. To assess your ability to repay, they look at your income and debt ratio. To assess your willingness to repay, they use your credit score.
The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score is a direct result of your history of repayment. They never consider income, savings, down payment amount, or personal factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to take into account only what was relevant to a borrower's willingness to pay back a loan.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scores. Your score reflects both the good and the bad in your credit report. Late payments count against you, but a record of paying on time will improve it.
Your report should 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 report to calculate an accurate score. If you don't meet the criteria for getting a credit score, you may need to establish a credit history prior to applying for a mortgage loan.