Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must find out two things about you: your ability to repay the loan, and your willingness to pay back the 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.
Fair Isaac and Company developed the first FICO score to help lenders assess creditworthines. We've written more on FICO here.
Your credit score is a direct result of your repayment history. They do not take into account income, savings, down payment amount, or personal factors like gender, ethnicity, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to pay without considering any other demographic factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score reflects both the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will improve it.
To get a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is enough information in your credit to calculate an accurate score. If you don't meet the criteria for getting a score, you may need to establish a credit history before you apply for a mortgage loan.
Nationwide Home Loans can answer your questions about credit reporting. Call us: (562) 693-5048.