Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to discover two things about you: whether you can pay back the loan, and your willingness to repay the loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. In order to calculate your willingness to pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company developed the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Credit scores only take into account the information in your credit profile. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was envisioned as a way to assess a borrower's willingness to pay without considering any other irrelevant factors.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score considers positive and negative information in your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.
Your report must 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 report to generate an accurate score. Should you not meet the minimum criteria for getting a score, you might need to work on a credit history prior to applying for a mortgage loan.
Blue Door Mortgage can answer questions about credit reports and many others. Call us: (617) 527-BLUE(2583).