Before lenders decide to lend you money, they want to know that you are willing and able to repay that loan. To figure out your ability to repay, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to assess creditworthines. For details on FICO, read more here.
Credit scores only assess the information contained in your credit reports. They don’t consider your income, savings, amount of down payment, or factors like sex ethnicity, national origin or marital status. These scores were invented specifically for this reason. “Profiling” was as bad a word when these scores were first invented as it is now. Credit scoring was developed to assess a borrower’s willingness to repay the loan while specifically excluding any other demographic factors.
Past delinquencies, derogatory payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score is calculated from the good and the bad of your credit report. Late payments count against your score, but a consistent record of paying on time will raise it.
To get a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your report to assign an accurate score. If you don’t meet the criteria for getting a score, you might need to work on your credit history prior to applying for a mortgage.