Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to discover two things about you: whether you can repay the loan, and if you will pay it back. To assess your ability to pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Your credit score comes from your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to take into account only what 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 a few other factors are considered. Your score considers both positive and negative information in your credit report. Late payments count against your score, 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 at least six months. This history ensures that there is sufficient information in your report to build a score. If you don't meet the minimum criteria for getting a credit score, you might need to establish a credit history prior to applying for a mortgage loan.
Channel Mortgage LLC can answer your questions about credit reporting. Call us at (718) 639-9500.