Before deciding on what terms they will offer you a mortgage loan, lenders must find out two things about you: whether you can repay the loan, and how committed you are to pay back the loan. To figure out your ability to pay back the loan, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
The most widely used credit scores are called FICO scores, which Fair Isaac & Company, a financial analytics agency, developed. The FICO score ranges from 350 (very high risk) to 850 (low risk). We've written more about FICO here.
Credit scores only consider the information in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was invented as a way to consider only that which was relevant to a borrower's likelihood to pay back a loan.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is calculated from the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will improve it.
Your credit report must 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 payment history ensures that there is sufficient information in your credit to generate a score. If you don't meet the minimum criteria for getting a credit score, you may need to establish your credit history prior to applying for a mortgage loan.
At U.S.A. Lending, Inc., we answer questions about Credit reports every day. Give us a call at 305-967-7200.