Before lenders make the decision to lend you money, they need to know if you're willing and able to repay that loan. To figure out your ability to repay, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
The most commonly used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). You can find out more on FICO here.
Credit scores only assess the info in your credit profile. 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 while specifically excluding other personal factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative items in your credit report. Late payments count against you, but a record of paying on time will raise it.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This history ensures that there is enough information in your report to calculate an accurate score. If you don't meet the minimum criteria for getting a credit score, you may need to work on a credit history prior to applying for a mortgage loan.
Community Trust Lending Team at Norcom Mortgage-NMLS ID#71655 can answer questions about credit reports and many others. Call us: (203) 526-9345.