Before they decide on the terms of your loan (which they base on their risk), lenders must find out two things about you: your ability to repay the loan, and if you will pay it back. To assess your ability to pay back the loan, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company built the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Your credit score is a direct result of your repayment history. They never take into account income, savings, down payment amount, or factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's likelihood to repay the lender.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score results from both positive and negative information in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.
Your report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This payment history ensures that there is sufficient information in your credit to assign a score. If you don't meet the minimum criteria for getting a score, you may need to work on a credit history before you apply for a mortgage.
Savers Home Loans can answer your questions about credit reporting. Call us: (800) 974-0509.