Before lenders make the decision to lend you money, they have to know if you are willing and able to pay back that mortgage. To understand your ability to pay back the loan, they assess your income and debt ratio. To assess your willingness to repay, they use your credit score.
Fair Isaac and Company built the first FICO score to help lenders assess creditworthines. We've written a lot more on FICO here.
Credit scores only assess the info contained in your credit reports. They do not take into account your income, savings, amount of down payment, or demographic factors like sex race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was invented as a way to take into account only what was relevant to a borrower's willingness to pay back a loan.
Past delinquencies, derogatory payment behavior, current 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 wtih both positive and negative information in your credit report. Late payments count against you, but a record of paying on time will improve it.
Your credit report should contain 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 credit to generate an accurate score. If you don't meet the minimum criteria for getting a score, you might need to work on a credit history prior to applying for a mortgage.
At U.S.A. Lending, Inc., we answer questions about Credit reports every day. Call us: 305-967-7200.