About Your Credit Score
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Before they decide on the terms of your loan, lenders want to discover two things about you: your ability to repay the loan, and your willingness to repay the loan. To understand your ability to pay back the loan, they assess your income and debt ratio. In order to calculate your willingness to repay the mortgage loan, they look at your credit score.
The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written more about FICO here.
Your credit score comes from your history of repayment. They do not take into account income, savings, down payment amount, or demographic factors like gender, ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to consider 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 credit inquiries are all calculated into credit scoring. Your score comes from both the good and the bad of your credit history. Late payments count against you, but a record of paying on time will improve 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 enough information in your credit to calculate an accurate score. Some people don't have a long enough credit history to get a credit score. They should build up credit history before they apply.