Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must discover two things about you: your ability to repay the loan, and if you are willing to pay it back. To assess your ability to pay back the loan, they look at your income and debt ratio. To calculate your willingness to repay the mortgage loan, they look at your credit score.
The most widely used credit scores are FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. Your FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.
Your credit score comes from your repayment history. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. Credit scoring was invented as a way to take into account solely that which was relevant to a borrower's likelihood to repay a loan.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all calculated into credit scores. Your score comes from the good and the bad of your credit history. Late payments will 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, borrowers must have an active credit account with a payment history of six months. This history ensures that there is enough information in your report to assign an accurate score. If you don't meet the criteria for getting a credit score, you might need to work on your credit history before you apply for a mortgage loan.
Reliance Mortgage Service, Inc can answer questions about credit reports and many others. Call us at 562 320-0510.