Before they decide on the terms of your mortgage loan (which they base on their risk), lenders want to discover two things about you: your ability to repay the loan, and how committed you are to pay back the loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. In order to assess your willingness to pay back the loan, they consult your credit score.
The most commonly used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. The FICO score ranges from 350 (high risk) to 850 (low risk). We've written a lot more on FICO here.
Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. "Profiling" was as dirty a word when these scores were first invented as it is today. Credit scoring was envisioned as a way to assess willingness to repay the loan without considering any other personal factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated wtih positive and negative items in your credit report. Late payments count against you, but a record of paying on time will improve it.
To get a credit score, borrowers must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your report to calculate an accurate score. Should you not meet the minimum criteria for getting a score, you may need to work on your credit history prior to applying for a mortgage.
PREMIERE MORTGAGE SERVICES, INC. can answer your questions about credit reporting. Give us a call at 978-422-2311.