Before deciding on what terms lenders will offer you on a loan, which they base on the "risk" to them, they want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan.  The first part they look at is your debt to income ratio.  The second part they look at your willingness to pay back the loan.  Thus your credit score is a reflection of your risk. 

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score can vary between 350 (high risk) and 850 (low risk).

Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. In fact, they don't consider demographic factors at all. Credit scoring was developed as a way to consider only what was relevant to somebody's willingness and ability to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores.  Your score considers both positive and negative information in your credit report.  Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.

Different portions of your credit history are given different weights.  For example, thirty-five percent of your FICO score is based on your specific payment history. Thirty percent of your FICO score is based your current level of indebtedness. Fifteen percent of your FICO score is based on the length of time your open credit has been in use - ten year old accounts are good, and six month old ones aren't as good.  Also included in the scoring criteria is the type of credit available to you such as installment loans.  Installment loans for example include student loans, car loans, and revolving accounts such as debit accounts and credit cards.  Finally, five percent is based on new -- credit score requested.

Your credit report must contain at least one active trade line or more, and at least one trade line that has been updated in the month for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.  Get your free credit report now!