Before deciding on what terms they will offer you a loan (which they base on their risk), lenders must find out two things about you: your ability to pay back the loan, and if you will pay it back. To assess whether you can repay, they look at your income and debt ratio. To assess your willingness to pay back the mortgage loan, they look at your credit score.
Fair Isaac and Company calculated the original FICO score to assess creditworthines. We've written a lot more about FICO here.
Credit scores only assess the information contained in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding any other personal factors.
Deliquencies, payment behavior, current debt level, length of credit history, types of credit and the number of inquiries are all calculated into credit scoring. Your score is calculated from the good and the bad in your credit history. Late payments lower your score, but consistently making future payments on time will raise your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with a payment history of at least six months. This history ensures that there is enough information in your report to build an accurate score. Some borrowers don't have a long enough credit history to get a credit score. They may need to spend some time building up a credit history before they apply.
Milestone Mortgage, Inc. NMLS#136714 can answer questions about credit reports and many others. Give us a call at 3175959600.