Before lenders decide to lend you money, they want to know that you're willing and able to pay back that loan. To figure out your ability to repay, they 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 a lot more about FICO here.
Credit scores only assess the information in your credit profile. They don't take into account your income, savings, amount of down payment, or factors like gender, race, nationality or marital status. These scores were invented specifically for this reason. "Profiling" was as bad a word when FICO scores were first invented as it is today. Credit scoring was developed as a way to consider only that which was relevant to a borrower's willingness to repay a loan.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih both positive and negative items in your credit report. Late payments count against your score, but a record of paying on time will improve it.
Your 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 build an accurate score. Should you not meet the criteria for getting a credit score, you may need to establish your credit history before you apply for a mortgage.
At Halpern & Associates Mortgage Corporation, we answer questions about Credit reports every day. Give us a call at (305) 535-2230.