Have you wondered how loan and mortgage companies decide whether or not to lend you money when you apply for a loan? For nearly all, the decision is based on one version or another of a 'credit score' based on your credit report. The most commonly used credit scoring 'device' is the FICO - software developed by Fair Isaac and Company to evaluate credit histories.

When you make an application for a mortgage loan, the finance company or bank makes an inquiry to a credit reporting agency. The credit reporting agency takes the information given them by the finance company and compiles a report based on information in its own records and other information that's a matter of public record. That information is not only compiled, it's fed into a software program that uses a series of algorithms to estimate the likelihood that you'll pay the loan back. It makes that estimation by comparing information about you with a profile created by compiling the 'ideal borrower'. The closer your information tallies with the 'ideal' profile, the higher your credit score.

Among the things that the FICO software evaluates when coming up with a credit score are:

- the length of time you've been in your current job

- the length of time you've lived at your current address

- how long you've had credit of any kind

- how many credit cards and loans you have

- whether you've ever made any late payments (or made any in the past four years) on credit accounts

- if you've paid off any loans in full

- if you've ever had an account referred to a collection agency

- how much debt you carry

- how much credit you have available to you

Those are only a few of the factors that affect your credit score. But just how much does your credit score affect your chances of getting the mortgage you want?

According to many financial experts, while your credit score is a large factor in determining whether or not to grant a loan or mortgage to you, banks and finance companies take many factors into account. Most have their own underwriting rules and scoring systems of which the FICO is only a part. Those may include your employment history, the local job market and many other things. Based on all of those factors, a company may decide to extend a mortgage to you despite a low credit rating - or refuse you credit even if your credit rating is high.

One common belief is that a low credit score is forever. Nothing could be further from the truth. Your credit score is very fluid - it's meant to represent a picture of your current circumstances and ability to repay a loan that's extended to you. For that reason, new information added to your credit report will affect your credit score - and the further in the past that credit mistakes are, the less they matter. In some cases, it takes as little as 4-6 months of on time payments to bring your credit score up high enough to qualify you for a new loan or mortgage. A new job, a raise in salary, or paying down one or two credit cards could make the difference between a rejection and getting the mortgage that you want.