Before lenders decide to give you a loan, they want to know that you're willing and able to pay back that mortgage loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company formulated the first FICO score to assess creditworthines. For details on FICO, read more here.
Your credit score comes from your history of repayment. They never take into account your income, savings, amount of down payment, or demographic factors like gender, ethnicity, national origin or marital status. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is today. Credit scoring was invented as a way to take into account only what was relevant to a borrower's willingness to repay the lender.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative items in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.
To get a credit score, borrowers 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 report to generate an accurate score. Should you not meet the criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage.
Ashok Lakshmanan can answer your questions about credit reporting. Give us a call: 630-717-3600.