Before lenders make the decision to give you a loan, they want to know if you're willing and able to repay that mortgage. To assess your ability to repay, they look at your income and debt ratio. In order to calculate your willingness to repay the loan, they look at 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). We've written a lot more about FICO here.
Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to consider only what was relevant to a borrower's willingness to pay back the lender.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score reflects the good and the bad in your credit history. Late payments count against you, but a record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your report to assign a score. If you don't meet the criteria for getting a credit score, you may need to work on your credit history before you apply for a mortgage.
Savers Home Loans can answer your questions about credit reporting. Call us: (800) 974-0509.