Before lenders decide to lend you money, they want to know if you are willing and able to pay back that mortgage. To assess your ability to repay, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written 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. "Profiling" was as dirty a word when these scores were invented as it is now. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering any other demographic factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad of your credit report. Late payments count against you, but a consistent record of paying on time will raise it.
To get 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 assign a score. If you don't meet the criteria for getting a score, you may need to establish a credit history before you apply for a mortgage.
Custom Lending Group can answer questions about credit reports and many others. Call us at 7072522700.