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 repay the loan, and your willingness to repay the loan. To assess 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 original FICO score to help lenders assess creditworthines. We've written more about FICO here.
Credit scores only assess the info in your credit profile. 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 invented as it is now. Credit scoring was envisioned as a way to consider solely what was relevant to a borrower's willingness to repay a loan.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scores. Your score comes from the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is enough information in your report to assign an accurate score. Should you not meet the criteria for getting a score, you might need to establish a credit history before you apply for a mortgage.
At Price Mortgage Group LLC, we answer questions about Credit reports every day. Call us: 405-513-7700.