About Your Credit Score
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to know 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, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company developed the first FICO score to assess creditworthines. We've written a lot more about FICO here.
Credit scores only take into account the info in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were first invented as it is in the present day. Credit scoring was developed to assess willingness to repay the loan without considering other irrelevant factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih both positive and negative information in your credit report. Late payments lower your score, but consistently making future 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 six months. This history ensures that there is sufficient information in your report to generate an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They should spend some time building up a credit history before they apply for a loan.
At The Lending Source, we answer questions about Credit reports every day. Call us at (973) 601-2122.