Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to find out two things about you: your ability to repay the loan, and if you are willing to pay it back. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. In order to assess your willingness to pay back the mortgage loan, they look at your credit score.
The most widely used credit scores are called 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 take into account the info in your credit profile. They don't consider income or personal characteristics. These scores were invented specifically for this reason. "Profiling" was as dirty a word when these scores were invented as it is today. Credit scoring was envisioned as a way to take into account only what was relevant to a borrower's likelihood to pay back the lender.
Your current debt level, past late payments, length of your credit history, and a few other factors are considered. Your score comes from both the good and the bad in your credit history. Late payments count against your score, but a record of paying on time will improve it.
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 history ensures that there is enough information in your report to calculate a score. Some borrowers don't have a long enough credit history to get a credit score. They should spend some time building up credit history before they apply for a loan.
America's Home Loans can answer your questions about credit reporting. Give us a call at 701.222.0100.