Before they decide on the terms of your loan, lenders want to find out two things about you: your ability to repay the loan, and if you are willing to pay it back. To understand whether you can repay, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they consult your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. You can find out more on FICO here.
Credit scores only assess the info in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as dirty a word when these scores were first invented as it is now. Credit scoring was developed to assess a borrower's willingness to repay the loan while specifically excluding any other irrelevant factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score is calculated wtih both positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.
To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your credit to generate an accurate score. If you don't meet the criteria for getting a credit score, you might need to establish your credit history before you apply for a mortgage loan.
At Savers Home Loans, we answer questions about Credit reports every day. Call us at (800) 974-0509.