Before lenders make the decision to give you a loan, they have to know that you're willing and able to pay back that mortgage. To assess your ability to pay back the loan, they assess your debt-to-income ratio. To assess your willingness to repay, they use your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. 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 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 dirty a word when FICO scores were first invented as it is in the present day. Credit scoring was developed to assess willingness to repay the loan while specifically excluding other personal factors.
Your current debt level, past late payments, length of your credit history, and other factors are considered. Your score is calculated wtih positive and negative information in your credit report. Late payments count against your score, but a record of paying on time will raise it.
For the agencies to calculate a credit score, you must have an active credit account with a payment history of at least six months. This history ensures that there is sufficient information in your report to assign a score. If you don't meet the criteria for getting a score, you might need to establish a credit history before you apply for a mortgage loan.
Hill Valley Financial Services Inc. can answer questions about credit reports and many others. Give us a call at 503-657-3311.