What is a credit score?
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders must discover two things about you: whether you can pay back the loan, and if you will pay it back. To assess whether you can pay back the loan, 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 first FICO score to help lenders assess creditworthiness. For details on FICO, read more here.
Credit scores only take into account the info contained in your credit profile. They never take into account income, savings, down payment amount, or personal factors like gender, ethnicity, national origin or marital status. Fair Isaac invented FICO specifically to exclude demographic factors. “Profiling” was as bad a word when FICO scores were first invented as it is now. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding any other irrelevant factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score comes from the good and the bad in your credit report. Late payments count against your score, but a consistent record of paying on time will improve it.
Your credit report must 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 payment history ensures that there is enough information in your report to generate an accurate score. Should you not meet the criteria for getting a credit score, you might need to work on your credit history prior to applying for a mortgage.