Credit Scores

Before lenders make the decision to give you a loan, they must know if you're willing and able to repay that mortgage loan. To understand whether you can 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 called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more on 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 first invented as it is today. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering any other irrelevant factors.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score is calculated from both the good and the bad of your credit history. Late payments count against you, but a record of paying on time will raise it.

Your credit report must have 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 sufficient information in your report to generate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to establish your credit history prior to applying for a mortgage.