Before deciding on what terms they will offer you a loan (which they base on their risk), lenders need to find out two things about you: whether you can repay the loan, and if you are willing to pay it back. To understand your ability to 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 formulated the original FICO score to help lenders assess creditworthines. For details on FICO, read more here.
Your credit score is a result of your history of repayment. They never consider your income, savings, amount of down payment, or personal factors like gender, race, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was developed as a way to take into account solely that which was relevant to a borrower's willingness to repay a loan.
Deliquencies, payment behavior, debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scoring. Your score is calculated wtih positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will raise it.
To get a credit score, you must have an active credit account with six months of payment history. This history ensures that there is enough information in your credit to calculate a score. If you don't meet the minimum criteria for getting a credit score, you may need to work on your credit history prior to applying for a mortgage.
Harbor View Lending* a DBA of Megastar Financial can answer your questions about credit reporting. Call us at (207) 571-8034.