Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must discover two things about you: whether you can pay back the loan, and if you will pay it back. To figure out your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company formulated the first FICO score to help lenders assess creditworthines. You can learn more about FICO here.
Credit scores only take into account the information in your credit profile. 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 first invented as it is now. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding any other irrelevant factors.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scoring. Your score is calculated wtih positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will improve it.
Your credit 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. Should you not meet the criteria for getting a credit score, you might need to work on a credit history prior to applying for a mortgage.
F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) can answer questions about credit reports and many others. Give us a call: 214-300-8756.