Before lenders make the decision to lend you money, they have to know that you're willing and able to repay that loan. To assess your ability to pay back the loan, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Your credit score is a direct result of your history of repayment. They do not consider your income, savings, down payment amount, or personal factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's willingness to repay the lender.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from both the good and the bad in your credit report. Late payments will lower your credit score, but consistently making future payments on time will raise your score.
To get a credit score, borrowers must have an active credit account with at least six months of payment history. This payment history ensures that there is sufficient information in your report to build a score. If you don't meet the criteria for getting a score, you might need to establish your credit history before you apply for a mortgage.
At Nationwide Home Loans, we answer questions about Credit reports every day. Call us: (562) 693-5048.