Before lenders decide to give you a loan, they need to know that you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, lenders look at your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. We've written more on FICO here.
Your credit score is a direct result of your history of repayment. They never take into account income, savings, down payment amount, or factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider only what was relevant to a borrower's willingness to pay back a loan.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score considers both positive and negative information in your credit report. Late payments count against you, but a record of paying on time will improve it.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of six months. This payment history ensures that there is enough information in your report to assign a 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.
Nationwide Home Loans can answer questions about credit reports and many others. Call us at (562) 693-5048.