Before lenders make the decision to give you a loan, they have to know if you're willing and able to repay that mortgage. To assess your ability to pay back the loan, lenders assess your debt-to-income ratio. In order to assess your willingness to pay back the loan, they consult your credit score.
The most widely used credit scores are called 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 learn more on 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 bad a word when FICO scores were first invented as it is in the present day. Credit scoring was invented as a way to take into account only what was relevant to a borrower's likelihood to pay back a loan.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is based on the good and the bad of your credit report. Late payments count against your score, but a record of paying on time will raise it.
Your credit 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 enough information in your credit to calculate a score. Some people don't have a long enough credit history to get a credit score. They may need to spend a little time building credit history before they apply for a loan.
At Blue Door Mortgage, we answer questions about Credit reports every day. Give us a call at (617) 527-BLUE(2583).