Before deciding on what terms they will offer you a mortgage loan, lenders need to find out two things about you: whether you can pay back the loan, and your willingness to repay the loan. To understand whether you can pay back the loan, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company developed the original FICO score to help lenders assess creditworthines. We've written a lot more on FICO here.
Credit scores only consider the information in your credit reports. They never consider your income, savings, amount of down payment, or factors like sex ethnicity, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when FICO scores were first invented as it is now. Credit scoring was envisioned as a way to consider solely that which was relevant to a borrower's likelihood to repay the lender.
Past delinquencies, 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 reflects the good and the bad in your credit history. Late payments will lower your credit score, but establishing or reestablishing a good track record of making payments on time will improve your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is enough information in your credit to calculate a score. If you don't meet the minimum criteria for getting a score, you might need to establish a credit history prior to applying for a mortgage loan.
First Southeast Mortgage Corporation can answer your questions about credit reporting. Call us: 954.920.9799.