Before deciding on what terms they will offer you a 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 whether you can pay back the loan, they assess your income and debt ratio. To calculate your willingness to pay back the loan, they consult your credit score.
Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. You can find out more about FICO here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering any other demographic factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score results from positive and negative items in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will improve your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with at least six months of payment history. This payment 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 may need to establish your credit history before you apply for a mortgage loan.
At Custom Lending Group, we answer questions about Credit reports every day. Give us a call: (707) 252-2700.