A Score that Really Matters: Your Credit Score

Before lenders make the decision to lend you money, they must know that you are willing and able to repay that loan. To assess your ability to pay back the loan, they assess your debt-to-income 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. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more about FICO here.

Credit scores only assess the information contained in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering any other irrelevant factors.

Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score reflects the good and the bad in your credit history. Late payments count against your score, but a consistent record of paying on time will improve it.

Your credit report should 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 payment history ensures that there is enough information in your credit to calculate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on your credit history before you apply for a mortgage.