Before they decide on the terms of your mortgage loan, lenders want to discover two things about you: whether you can pay back the loan, and if you will pay it back. To assess your ability to repay, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
The most commonly used credit scores are 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 on FICO here.
Credit scores only assess the info contained in your credit reports. They don't consider income or personal characteristics. Fair Isaac invented FICO specifically to exclude demographic factors. "Profiling" was as bad a word when these scores were invented as it is now. Credit scoring was envisioned as a way to assess a borrower's willingness to repay the loan without considering any other personal factors.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries are all calculated into credit scores. Your score is calculated from the good and the bad of your credit history. Late payments lower your credit score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Your credit report should 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 report to assign an accurate score. If you don't meet the minimum criteria for getting a score, you may need to work on a credit history prior to applying for a mortgage.
First Southeast Mortgage Corporation can answer your questions about credit reporting. Call us at 954.920.9799.