Credit History: Every time you pay a bill, this action is tracked by a credit bureau. They note whether it was paid on time, whether the minimum payment was made, as well as the total amount of debt you have accumulated. The effectiveness of your ability to pay this bill results in a credit or FICO score between 300 and 850.

Income: A lender will look at your income, how long you've been doing your job, if you bounce from job to job and how long you've been working in your particular profession. All of these criteria go toward creating a profile of stability and ability to pay the debt. They compare your income to the cost of your mortgage, credit card bills, car payment or any other outstanding debts and use this figure to create a debt-to-income ratio. Generally this number is kept under 36 percent.

Loan to value ratio (LTV): This is the difference between what you owe on your house and what it's actually worth; for instance if your home is worth $100,000 and you have an outstanding balance of $80,000, your loan to value ratio is 80 percent. Lenders usually keep this total at about 80 percent or less.

How can you improve your odds: A consumer can obtain a copy of their credit report, either by purchasing it directly from Fair Isaac Corp. (Federal law entitles you to one free credit report per year). This will provide you with separate credit scores from 3 national credit bureaus and includes an explanation of the factors affecting your scores. The reports will outline all your debts, creditor info, opening balance, payment history and current balance. Obtaining the report will not affect your credit score, but it will open your eyes as to your credit history and what you can do to improve it before applying for a mortgage.

You will see how your credit score is affected when you do any of the following:

• Pay your bills on time for many months


• Miss a payment


• Pay down your debt balances right away or every month


• "Max out" your credit cards


• Get a new mortgage


• Get a new auto loan


• Get a new credit card


• Get instant credit at a department store


• Apply for a new credit card and transfer balances to it


• Declare bankruptcy

When you apply for a loan or mortgage, make certain you provide complete records, especially for your proofs of income. These may include W-2s, tax returns, or other earnings.

Less than perfect credit does not necessarily mean you will be denied the loan, but your interest rate may be higher.