Before deciding on what terms they will offer you a loan (which they base on their risk), lenders want to know two things about you: your ability to pay back the loan, and how committed you are to repay the loan. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. For details on FICO, read more 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. Credit scoring was developed to assess willingness to pay without considering other personal factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score comes from both the good and the bad in your credit report. Late payments count against your score, but a record of paying on time will improve it.
For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your report to build an accurate 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 up credit history before they apply for a loan.
Blue Door Mortgage can answer your questions about credit reporting. Give us a call: (617) 527-BLUE(2583).