Before they decide on the terms of your loan (which they base on their risk), lenders must know two things about you: your ability to pay back the loan, and how committed you are to pay back the loan. To understand whether you can repay, they assess your income and debt ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. You can find out more on FICO here.
Your credit score is a direct result of your repayment history. They don't consider your income, savings, amount of down payment, or demographic factors like gender, ethnicity, nationality or marital status. 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 developed to assess a borrower's willingness to repay the loan while specifically excluding other personal factors.
Past delinquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all considered in credit scores. Your score is calculated wtih positive and negative items in your credit report. Late payments count against you, but a consistent record of paying on time will improve it.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your report to build 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.
American Commerce Mortgage can answer your questions about credit reporting. Give us a call: 714-970-9700.