Before lenders decide to lend you money, they need to know that you are willing and able to repay that mortgage loan. To assess your ability to repay, they assess your debt-to-income ratio. In order to assess your willingness to repay the loan, they look at your credit score.
The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (high risk) to 850 (low risk). You can find out more on FICO here.
Credit scores only take into account the information in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when FICO scores were invented as it is in the present day. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other irrelevant factors.
Deliquencies, derogatory payment behavior, debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score results from positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
Your report should have 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 sufficient information in your credit to assign a score. Some folks don't have a long enough credit history to get a credit score. They should spend some time building a credit history before they apply for a loan.
Affinity Mortgage Brokers can answer your questions about credit reporting. Give us a call at 719-425-2226.