Before lenders decide to lend you money, they have to know that you're willing and able to repay that mortgage. To assess your ability to repay, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Your credit score is a result of your repayment history. They don't consider your income, savings, amount of down payment, or demographic factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were first invented as it is in the present day. Credit scoring was developed as a way to take into account solely what was relevant to a borrower's willingness to repay a loan.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad of your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making 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 history ensures that there is sufficient information in your report to calculate an accurate score. Should you not meet the criteria for getting a credit score, you may need to work on your credit history prior to applying for a mortgage loan.
Ashok Lakshmanan can answer your questions about credit reporting. Call us: 630-717-3600.