Your Credit Score: What it means

Before deciding on what terms they will offer you a mortgage loan, lenders need to find out two things about you: whether you can pay back the loan, and if you are willing to pay it back. To figure out your ability to repay, lenders assess your debt-to-income 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). You can learn more about FICO here.

Your credit score is a direct result of 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 these scores were invented as it is now. Credit scoring was envisioned as a way to take into account only that which was relevant to a borrower's willingness to repay the lender.

Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is based on the good and the bad of your credit report. Late payments count against you, but a record of paying on time will raise it.

For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your report to assign an accurate score. If you don't meet the criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage loan.