Before deciding on what terms they will offer you a loan (which they base on their risk), lenders want to discover two things about you: whether you can pay back the loan, and if you will pay it back. To figure out your ability to repay, they look at your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company developed the original FICO score to assess creditworthines. You can find out more on FICO here.
Credit scores only assess the info in your credit reports. 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 these scores were invented as it is today. Credit scoring was envisioned as a way to assess a borrower's willingness to pay while specifically excluding other irrelevant factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered. Your score is based on both the good and the bad of your credit history. Late payments lower your credit score, but consistently making future payments on time will improve your score.
Your report should 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 sufficient information in your credit to calculate a score. Some people don't have a long enough credit history to get a credit score. They may need to spend some time building up a credit history before they apply for a loan.
At Capacity Lending, LLC, we answer questions about Credit reports every day. Give us a call at 469-640-0400.