A Score that Really Matters: The Credit Score

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Before lenders make the decision to give you a loan, they need to know that you're willing and able to repay that mortgage loan. To understand your ability to repay, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.

The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more on FICO here.

Your credit score comes from your repayment history. They never take into account your income, savings, amount of down payment, or factors like sex race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as bad a word when these scores were first invented as it is now. Credit scoring was invented as a way to consider solely what was relevant to a borrower's likelihood to repay the lender.

Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated from the good and the bad in your credit history. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.

Your credit 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 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 credit score, you may need to establish your credit history prior to applying for a mortgage.

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