Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must find out two things about you: whether you can pay back the loan, and your willingness to repay the loan. To figure out your ability to repay, lenders assess your debt-to-income ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.
Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Your credit score comes from your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was envisioned as a way to take into account solely that which was relevant to a borrower's likelihood to pay back the lender.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score comes from both the good and the bad of your credit history. Late payments count against you, but a record of paying on time will improve it.
Your report must have at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This payment history ensures that there is enough information in your credit to calculate a score. Some people don't have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.
At Channel Mortgage LLC, we answer questions about Credit reports every day. Give us a call: (718) 639-9500.