Before lenders make the decision to lend you money, they need to know that you're willing and able to pay back that mortgage. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most commonly used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score ranges from 350 (very high risk) to 850 (low risk). For details on FICO, read more here.
Your credit score is a direct result of your repayment history. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider only what was relevant to a borrower's likelihood to repay a loan.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score reflects the good and the bad of your credit history. Late payments count against you, but a consistent record of paying on time will raise it.
Your report should have at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This history ensures that there is enough information in your report to calculate an accurate score. Should you not meet the minimum criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage loan.
The Mortgage Exchange Service LLC can answer your questions about credit reporting. Call us at 703.255-5810.