Before deciding on what terms they will offer you a mortgage loan, lenders want to discover two things about you: whether you can pay back the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, lenders look at 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. We've written more about FICO here.
Credit scores only consider the info contained in your credit profile. 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 pay while specifically excluding any other demographic factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score comes from both the good and the bad of your credit report. Late payments count against you, but a 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 payment history ensures that there is sufficient information in your credit 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 loan.
At Price Mortgage Group LLC, we answer questions about Credit reports every day. Call us: 405-513-7700.