Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must find out two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To assess your ability to repay, they assess your income and debt ratio. To calculate your willingness to pay back the loan, they look at your credit score.
Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.
Credit scores only take into account the info contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were first invented as it is today. Credit scoring was developed to assess willingness to pay without considering any other demographic factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scores. Your score considers both positive and negative items in your credit report. Late payments will lower your score, but consistently making future payments on time will raise your score.
Your report should 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 payment history ensures that there is enough information in your credit to build an accurate score. If you don't meet the criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage loan.
1st Credential Mortgage Inc can answer your questions about credit reporting. Give us a call: (281) 778-0805.