Before they decide on the terms of your loan (which they base on their risk), lenders want to discover two things about you: your ability to pay back the loan, and your willingness to pay back the loan. To assess your ability to pay back the loan, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company built the original FICO score to help lenders assess creditworthines. You can learn more about FICO here.
Credit scores only consider the information in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan while specifically excluding any other personal factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score results from both positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.
For the agencies to calculate a credit score, borrowers 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 calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage.
1st Credential Mortgage Inc can answer questions about credit reports and many others. Call us: (281) 778-0805.