Before lenders decide to give you a loan, they have to know that you are willing and able to repay that mortgage loan. To figure out your ability to pay back the loan, lenders assess 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 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.
Credit scores only assess the information in your credit reports. They never consider your income, savings, down payment amount, or personal factors like gender, race, national origin or marital status. These scores were invented specifically for this reason. Credit scoring was envisioned as a way to assess willingness to pay while specifically excluding other personal factors.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score is calculated from the good and the bad in your credit report. Late payments will lower your score, but consistently making future payments on time will improve your score.
To get a credit score, borrowers must have an active credit account with six months of payment history. This history ensures that there is enough information in your report to assign a score. Should you not meet the criteria for getting a score, you may need to establish a credit history before you apply for a mortgage loan.
Southwest Funding #841 can answer your questions about credit reporting. Give us a call at (512) 291-6100.