Before deciding on what terms they will offer you a loan, lenders need to know two things about you: your ability to pay back the loan, and your willingness to repay the loan. To assess whether you can pay back the loan, they assess your income and debt ratio. In order to assess your willingness to repay the loan, they look at your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. We've written a lot more about FICO here.
Your credit score is a direct result of your history of repayment. They never take into account income, savings, down payment amount, or demographic factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to take into account solely what was relevant to a borrower's likelihood to repay a loan.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score reflects both the good and the bad in your credit history. Late payments count against your score, but a consistent record of paying on time will raise it.
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 history ensures that there is sufficient information in your report to assign a score. Some borrowers don't have a long enough credit history to get a credit score. They should build up credit history before they apply.
Custom Lending Group can answer your questions about credit reporting. Give us a call at (707) 252-2700.