Your Credit Score: What it means
Before lenders make the decision to lend you money, they must know that you're willing and able to pay back that mortgage loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. In order to assess your willingness to pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company developed the first FICO score to assess creditworthines. We've written more on FICO here.
Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is today. Credit scoring was invented as a way to consider only what was relevant to a borrower's likelihood to repay a loan.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score considers positive and negative items in your credit report. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This payment history ensures that there is sufficient information in your credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They should build up credit history before they apply for a loan.
Savers Home Loans can answer your questions about credit reporting. Give us a call: (800) 974-0509.