Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to know two things about you: whether you can repay the loan, and how committed you are to repay the loan. To understand your ability to 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 built the first FICO score to help lenders assess creditworthines. We've written a lot more about FICO here.
Credit scores only consider the info in your credit reports. They don't consider income or personal characteristics. These scores were invented specifically for this reason. Credit scoring was developed as a way to take into account only that which was relevant to a borrower's likelihood to pay back a loan.
Deliquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of credit inquiries are all considered in credit scoring. Your score comes from both the good and the bad in your credit report. Late payments count against you, but a consistent record of paying on time will raise it.
For the agencies to calculate a credit score, you must have an active credit account with at least six months of payment history. This history ensures that there is sufficient information in your credit to assign a score. If you don't meet the minimum criteria for getting a credit score, you might need to work on a credit history before you apply for a mortgage loan.
Foxfield Financial can answer your questions about credit reporting. Give us a call at 720-598-8300.