Before lenders make the decision to lend you money, they need to know if you're willing and able to repay that mortgage. To assess whether you can pay back the loan, they look at your income and debt ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the original FICO score to help lenders assess creditworthines. We've written a lot more on FICO 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. "Profiling" was as bad a word when FICO scores were first invented as it is now. Credit scoring was developed to assess a borrower's willingness to repay the loan without considering other demographic factors.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all calculated into credit scoring. Your score is calculated wtih both positive and negative items in your credit report. Late payments lower your credit score, but consistently making future payments on time will improve your score.
For the agencies to calculate a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is sufficient information in your credit to generate an accurate score. Should you not meet the criteria for getting a credit score, you may need to establish a credit history before you apply for a mortgage.
Tenby J. Dahman can answer your questions about credit reporting. Give us a call: 3038627760.