Before lenders decide to lend you money, they have to know if you're willing and able to repay that loan. To assess your ability to pay back the loan, they look at your income and debt ratio. To calculate your willingness to pay back the loan, they look at your credit score.
Fair Isaac and Company built the first FICO score to help lenders assess creditworthines. We've written more about FICO here.
Your credit score is a direct result of your history of repayment. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors like these. Credit scoring was developed to assess a borrower's willingness to pay while specifically excluding any other irrelevant factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score comes from both the good and the bad in your credit report. Late payments lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
For the agencies to calculate a credit score, you 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 build an accurate score. If you don't meet the minimum criteria for getting a score, you may need to establish your credit history prior to applying for a mortgage loan.
At American Commerce Mortgage, we answer questions about Credit reports every day. Call us at 714-970-9700.