Before lenders make the decision to lend you money, they need to know if you're willing and able to pay back that mortgage. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
The most commonly used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.
Credit scores only consider the info contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were first invented as it is today. Credit scoring was invented as a way to consider only that which 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 other factors are considered. Your score is based on both the good and the bad in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.
To get a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is sufficient information in your report to generate a score. Should you not meet the minimum criteria for getting a score, you may need to work on a credit history before you apply for a mortgage.
At C2 Financial Corporation, we answer questions about Credit reports every day. Call us: 5622061550.