Before lenders make the decision to lend you money, they must know if you're willing and able to repay that loan. To assess your ability to repay, lenders look at your debt-to-income ratio. In order to calculate your willingness to repay the loan, they consult your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (high risk) to 850 (low risk). We've written more about FICO here.
Credit scores only consider the information in your credit profile. 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 in the present day. Credit scoring was envisioned 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 reflects both the good and the bad in your credit report. Late payments count against your score, but a record of paying on time will raise it.
To get a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to build an accurate score. Some folks don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.
Savers Home Loans can answer your questions about credit reporting. Call us at (800) 974-0509.