What credit score do mortgage lenders use

Which Credit Score Do Lenders Use?

What credit score do mortgage lenders use

A few points up or down can make a big difference in your ability to qualify for a loan or other forms of financing.

A few points might also affect the interest rate you pay.

Knowing which credit score your lender uses could make a big difference when buying a house, car, or renting an apartment.

The rules for narrowing down the possibilities vary with each type of transaction.

Credit Scores Auto Dealers and Lenders Use

Car buyers might be very surprised to learn how many credit score variations they might encounter. There is no single right answer for every situation. You have to account for the different usage by car dealers versus the ultimate lenders, and then include auto industry overlays (which predict different behaviors), and bureau variations.

View Your Credit Score and Report. Unlimited Access. Just $9.95/Month with TransUnion! Obtain your consumer report, and examine the hard and soft inquiries on your file. This will tell you which lender uses which agency for your transactions.

Most car dealers do not make loans. Auto lenders and finance companies make the final lending decision. However, sometimes the car dealer makes an interim lending decision.

Once you enter a car dealer to look at purchasing a new or used car, that dealer wants you to buy from them, and not the dealer down the road. Dealers will often “spot” vehicles in order to close more deals. They let you drive away in one of their cars pending final approval from one of their preferred lenders.

Each car dealer may use one credit score for all spot deals to prequalify all buyers. There are about 15,000 car dealerships in the United States. Each one makes an independent decision.

Auto lenders and finance companies make the final lending decisions, whether the dealer spotted the car, or not. The number of auto lenders is much smaller, but overlays and bureau preferences also make it challenging to narrow down which credit score they might use.

Most auto lenders utilize custom overlay credit scores that differ from the general versions consumers see when they purchase them themselves. An “auto-enhanced” version predicts future performance on automotive loans, rather than all lending obligations. It is a more precise tool.

These enhancements vary depending upon which consumer-reporting agency was checked. Each lender has different business rules surrounding bureau preferences based upon geography, the perception of quality, price, and other factors.

Credit Score Home Lenders Check

Mortgage companies and home lenders check credit scores in unique ways. A home purchase is typically the largest single borrowing transaction any individual makes.

The stakes are very high, and lenders sell conforming mortgages on the secondary market. The federal government regulates sales of mortgage-backed securities and imposes rules.

One of those rules is the use of merged reports, and use of the middle credit score.

When buying or refinancing a home, you mortgage lender most likely will pull a tri-bureau merged consumer report. An intermediary company takes information from each of the big three consumer reporting companies and blends the data together into a single file.

Merged reports ensure that nothing slips through the cracks.

Each agency supplies a generic risk score. Each equation is fine-tuned to predict future delinquency using the data unique to that agency. The results cannot be blended together as with the information contained in the report.

The mortgage company has to pick one of the three. Most frequently, they throw out the high and low and use the middle credit score.

Credit Score Apartment Complexes Look At

Many apartment complex landlords look at much different credit scores than traditional lenders because they serve unique populations, and have other concerns.

Renters tend to have fewer or weaker financial credentials. Either they are just starting their careers, or they do not have enough assets to make a down payment on a home.

Landlords have different concerns than traditional lenders. Once a renter moves in, many laws protect the renter from eviction, even if they are very late in making rent payments. In addition, the property can suffer significant damage.

The choice of credit scores to look at often hinges on the occupancy rate of the multifamily dwelling unit.

Landlords for high-occupancy apartment complexes can be more choosy. Not only will their qualifying criteria be much higher, they may choose to spend more for a specialized credit score.

The CoreLogic SafeRent credit score combines traditional consumer report information with data from previous tenant histories and criminal public record files.

Landlords for low occupancy apartment complexes may have to show more flexibility. They still need to attract renters who may pay on time, but cannot afford to turn away too many applicants.

The PRBC alternative credit score can help prospective apartment renters to show a positive payment history even without a traditional consumer credit file. You can use utility, cable, rent, mobile phone, and other everyday bills to establish a positive payment history.

Do Mortgage Lenders Check All Three of Your Credit Scores?

You can order a free annual credit report to check for accuracy before a lender pulls your credit scores.

Your credit score helps lenders decide whether you're likely to repay a home loan. It's a key risk-assessment factor that affects loan features such as the down payment requirement on a purchase, the minimum equity for a refinance, and your interest rate. Lenders analyze your entire credit report and choose one representative credit score to decide the loan details.

Mortgage lenders check your FICO score -- a number between 300 and 850 -- which each of the three major consumer reporting agencies, or bureaus, generate. Collectors regularly report your credit activity, such as payments -- or lack thereof -- credit use, and new or closed accounts to the bureaus. Equifax, Experian and TransUnion individually develop a score based on this information. Because creditors may report to a single bureau rather than all three, and report at different times, each bureau can produce a unique score. As a result, most consumers have three different credit scores when a mortgage lender checks their credit.

Mortgage lenders pull a tri-merged credit report known as a residential mortgage credit report, which differs from the credit reports used for other forms of consumer credit, such as auto financing or credit cards. A third-party company, known as a repository, gathers, records and updates financial and public information, such as judgment, bankruptcy and foreclosure information, and reports it in a single comprehensive and easy-to-read format. Mortgage lenders buy your three credit scores and the corresponding credit history from the repository, and may pass the credit report fee on to you.

Your lender uses the middle of your three FICO scores, rather than the highest or lowest, to make lending decisions. When a borrower's has two FICO scores that are identical, the lender uses that score. For example, on a tri-merged report that lists a 620 and two 645 scores, the lender uses the 645 score. When more than one borrower applies, the lender bases its decision on the lowest middle score among all of the FICO scores submitted. For example, the lender uses a 620 score when two co-borrowers have middle scores of 620 and 700.

Savvy borrowers check their credit before allowing a mortgage lender to pull it. You can identify and correct erroneous information and pinpoint ways to improve your score if needed. You are entitled to a free credit report every 12 months, but you can't use this report to apply for a mortgage. The lender pulls a residential mortgage credit report at the time of application and usually checks your credit again before closing. Lenders check credit more than once during a transaction to ensure that your credit score remains at an acceptable level.

What Credit Score is Needed to Buy a House

What credit score do mortgage lenders use

Using a 650 Credit Score to Buy a House

We all have our dreams of the perfect home, white picket fence, and a family dog (or cat). But what credit score is needed to buy a house? Does having a credit score of 650 mean that those dreams won’t become a reality? Luckily, no! You can still realize your dreams, and purchase that home. A 650 credit score mortgage is possible for many people. It may be a bit more difficult for someone with a 650 score than for someone with a score above 700, which is a more ideal credit score to buy a house. But if you’re looking to get a mortgage with a credit score of 650, here is what you need to know.

Conventional vs FHA – 650 Credit Score Mortgage

There are really two types of mortgages that you should know about, conventional and FHA. So what’s the difference? And why does it matter to people with a 650 credit score mortgage?

What is a Good Credit Score to Buy a House with a Conventional Mortgage?

A conventional loan is when the bank lends money to someone based on their credit history. The buyer needs to have a down payment. This down payment is usually between 3 and 20 percent of the cost of the house. Buyers who have lower credit scores may have to put down as much as 30-35%. This is something to keep in mind when you are looking to buy a home with a credit score of 650. It can be helpful to seek out smaller, local banks when you have a credit score of 650 and are looking to get a mortgage. Often these smaller lenders can approve loans based on references etc. instead of simply relying on the credit score alone to approve or deny a loan. Larger lenders are often less forgiving of a low credit score. The good news for people with a credit score of 650 is that according to bankrate.com the new minimum for a conventional loan is a credit score of 620. The good thing about conventional loans is the process can go much more quickly than with an FHA loan. Also, you can build home equity more quickly since you probably had to put more down for a down payment. The down side is that interest rates are usually based on credit and the size of the down payment you can afford. Therefore, a 650 credit score mortgage will likely be looking at higher interest rates.

FHA Mortgage Loans and Credit Score Needed to Buy a House

An FHA loan is a loan that is guaranteed through the Federal Housing Administration. It is government program that protects lenders so they are not responsible for the money that is loaned. According to FHA.com with an FHA loan you typically need to have a minimum credit score of 580, but at times they may accept people with scores lower than 580. The wonderful thing about FHA loans is that you can typically purchase with as little as 3.5 percent down. Sometimes you can get a fully financed mortgage through the Federal Housing Administration, so that you can purchase a home with no money down. The downside of having an FHA loan is that the home needs to be inspected and meet certain criteria. The appraisal is done by an FHA approved appraiser. This can be one additional hurdle that you must jump through in the home buying process. Another drawback is Mortgage Insurance Premiums (or PMI). If you put less than 10% down on a home you may have to pay these premiums for up to 11 years. The last and most obvious drawback is the amount of interest you will be paying as a result of putting less money down. The larger the amount of money borrowed, the more you pay in the long run.

As you can see, there are options for you when considering using a 650 credit score to buy a house. It is important to consider the pros and cons of the types of loans out there, and do your research so that you know what you are getting yourself into. With a credit score of 650 it is possible to get a conventional or an FHA loan. Ultimately, the more money you can pay up-front for your home, the better off you will be with your 650 credit score mortgage.

Payments on a Home Mortgage Loan

Now that you know you can get a 650 credit score mortgage, what else should you know? Since the goal is ultimately to raise your credit score above a 650, keep in mind your financial situation when purchasing a home. It is important to create a budget and to consider your income and outgoing expenses when calculating the size of monthly payment you can afford on your new home. There are wonderful resources of the web to help you in determining this. Budgetworksheets.org can assist you in determining your monthly expenses. If you get yourself into a mortgage with high monthly payments that hinder you from keeping up on other expenses, you may be in no position to better your credit score, and may even do the opposite. Once you have determined what you can afford for a monthly payment, you can use an online calculator to figure out what price-range you should be looking in for a house. If you are going with an FHA loan, FHA.com has a mortgage calculator to assists you: www.fha.com/calculator_payments. With a conventional loan it is best to rely on your banker to help you determine what you can afford, as the online calculators for home buying can be misleading.

Finally, if you have been wondering what credit score is needed to buy a house and are very serious about increasing your credit score to a score of higher than 650, it is best to be conservative when buying a home. Many people simply try to achieve the lowest credit score to buy a house, and forget to consider all the additional costs of taxes, insurance, upkeep etc. Many people purchase a home at the very maximum their budget allows, leaving little or no wiggle room when expenses come up.

Here are the things to remember when getting a 650 credit score mortgage and trying to increase your credit score at the same time:

  1. Save for a substantial down payment.
  2. Have additional money in savings for an emergency fund.
  3. Continue paying down debt.
  4. Consider debt payments in your monthly budget plan.
  5. Buy conservatively (don’t max out your budget).

What Does My Credit Score Mean in 2017

What credit score do mortgage lenders use

August 13th, 2015

What credit score do mortgage lenders use

What’s your credit score? If you think you know a single answer to that, you’re probably wrong. Because most consumers have … well, a score of credit scores – often more.

Don’t worry if you didn’t know that. Everyone recognizes that credit scores are important to financial well-being, but few know much detail about them. And there are many misapprehensions surrounding them. Learn more about credit score myths.

A credit score is just a numerical value put on the contents of your credit report. The higher your score, the more creditworthy you’re likely to be.

It takes a very sophisticated algorithm running on high-powered IT systems to calculate a score fairly, because each entry on your credit report is given a numerical value, which changes over time. Those entries could include:

  • Loans you’ve taken
  • Loans you’ve applied for, whether or not successfully
  • Payments you’ve made
  • Late or skipped payments
  • Balances on loans
  • Defaults
  • Foreclosures
  • Bankruptcies
  • Adverse court judgments

Damaging entries are usually deleted from your report (and will stop affecting your credit score) after seven years, though really serious events, such as bankruptcies, can stay on for ten years. However, those clever scoring algorithms will place more emphasis on recent bad behavior, and older credit “misdemeanors” should fade in importance as months and years go by until they finally disappear.

The things that affect your score are, in order of importance, your:

  1. Payment history – Late payments harm your score, skipped ones are worse.
  2. Amounts owed – This mostly applies to credit cards, and, for the best scores, balances should be below 30 percent of credit limits.
  3. Types of credit in use – It’s good to have a mix of revolving credit (mostly credit cards) and nonrevolving (installment loans such as mortgages, personal loans, home equity loans, and auto loans).
  4. New credit – The average age of all your accounts: the older, the better.

Should I Monitor My Credit Score?

There are two main companies that create those credit scoring algorithms – FICO and VantageScore. And there are three major consumer credit bureaus, Equifax, Experian and TransUnion, each of which uses scoring technologies slightly differently. Some types of lender (those providing mortgages, say, or auto loans) want to place more emphasis on some aspects of your credit report than others, and they use scoring algorithms that are tweaked to meet their needs. And some lenders don’t want to go through the expense of upgrading their IT systems, and use old versions of the FICO and VantageScore applications. Now you can see why some consumers have 40 or 50 credit scores each.

But don’t worry. All credit scores are based solely on the contents of your credit report, so variations between them are likely to be fairly small. And, if one of your credit scores goes up or down in a month, the chances are the others are going to move to a similar extent in the same direction.

So it’s well worth actively managing your score, and that begins by constantly monitoring it. Nowadays, you can do that at absolutely no cost by subscribing to a free credit score service, such as the one offered by LendingTree.

How Do I know if My Credit Score is Good?

You already know that the higher your personal number, the better. But what are commonly used credit score ranges? Well, here’s how credit bureau Experian defines different VantageScore 3.0 ranges:

  • Super Prime 781-850
  • Prime 661-780
  • Near Prime 601-660
  • Subprime 500-600
  • Deep subprime 300-499

FICO doesn’t necessarily use those terms, and employs different ranges for its standard scores:

Presumably, those with scores in the 300-619 range might find it difficult to get approved for mainstream borrowing. And it’s important to remember that any lender can use any range and define it any way it wants.

However, at the time of writing, FICO suggests that someone in that top tier (760-850) might qualify for a 30-year fixed-rate mortgage at 3.662 percent APR, while someone in the lowest tier listed (620-639) might have to pay 5.251 percent APR. On a $150,000 mortgage, that difference could cost you $50,830 in extra interest over the lifetime of the loan. On a $20,000, 36-month, new auto loan, the difference in interest between those in those top and bottom tiers could be $4,823.

Wow! So the answer to that question is: You know your credit score is good when it’s as high as you can get it, and you’re thus paying the least interest possible. And remember, lenders are generally extremely keen to lend to those in the top tier or two, so, if you push your score way up there, you can negotiate hard over the terms of your loan.

What Can I Do if My Credit Score Is Bad?

Having a low credit score can blight your life. Not only might you find it difficult to borrow at sensible interest rates, you might find it difficult to borrow at all. And some insurers now check customers’ scores when they set premiums for home and auto cover. Worst of all, many employers check credit reports (not scores, but the two are closely linked) before hiring new employees or promoting existing ones.

It’s well worth actively managing your credit, starting with signing up with a free credit score service. Then find out How to Build a Good Credit Score.

The credit score used by mortgage companies will surprise you

Are you applying for a mortgage? The credit score used by mortgage companies may surprise you.

  • By Nick Clements with Forbes
  • – 12/06/2016
  • 972

If you are applying for a mortgage, your credit score will be a critical part of the process. You could get rejected with a credit score that is too low. And once approved, your score will determine the interest rate charged. Someone with a 620 might have to pay an interest rate that is as much as 3% higher than someone with a 740. But what credit scores do mortgage lenders actually use? The answer might surprise you.*

Fannie Mae and Freddie Mac are government agencies that purchase the majority of mortgages originated in the country. These agencies set the rules and underwriting criteria for the loans that they purchase, including what credit scores should be used. Surprisingly, the agencies require much older versions of the FICO credit score. According to a review of the agency Selling Guides by MagnifyMoney, these are the scores that matter:

  • From the Equifax credit bureau: FICO Version 5 (also called Equifax Beacon 5.0)
  • From the Experian credit bureau: FICO Version 2 (also called Experian/Fair Isaac Risk Model V2SM)
  • From the TransUnion credit bureau: FICO Version 4 (also called TransUnion FICO Risk Score, Classic 04)

Even though FICO has just recently introduced Version 9 of its score, most mortgage lenders will still be using a much older credit score.

If you get a free credit score from a website like CreditKarma, you are receiving the VantageScore. If you are getting your official FICO from your credit card company, it is most likely a much newer version of FICO. If you want to see the FICO score required by mortgage companies, you would have to buy it from myFICO.com.

If you do get a free credit score from your credit card company or CreditKarma and have an excellent credit score, chances are very high that you will also have an excellent credit mortgage score as well. You probably don’t need to spend the money to purchase your mortgage scores. However, if your credit score is borderline, you might want to spend the money to see if it is better to apply now or wait until your score improves.

Which Older Version of FICO Will Be Used?

Your credit score can vary from one credit bureau to another, because some information (either positive or negative) might not be on all of your credit reports. In addition, you might have a co-signer on the mortgage who has a different credit score. There are actually some very simple rules dictating which credit score to use.

  • If the mortgage company pulls credit from two credit bureaus, the lower credit score will be used. If you have a 700 credit score on Experian and a 680 on Equifax, the 680 score would be used.
  • If the mortgage company pulls credit from all three bureaus, the middle score will be used. If you have a 700 on Experian, 680 on Equifax and 660 on TransUnion, the 680 score would be used.
  • If you have a co-signer, the above methodology (lower of two or middle of three scores) will be used for each applicant. The lower credit score of the two borrowers will be used.

In general, banks and mortgage companies want to use the lowest score available because it will likely have taken into account all negative information that is available. You will not be able to hide negative information on your credit report when applying for a mortgage.

Unfortunately, just knowing which FICO credit score is being used isn't enough to know if you are going to be approved. According to Timothy Mayopoulos, the Fannie Mae CEO, "some people suggest we slavishly follow FICO. That is not true. We evaluate credit data through our own automated system and form our own judgments about the creditworthiness." In addition to the FICO credit score, there are a number of underwriting rules being used. The most recent addition is the use of trended data.

With trended data, lenders will have a different view of your payment history. In particular, lenders will see if you pay your credit card balance in full every month or not. People who borrow on their credit cards are, in general, viewed as much riskier than people who use their cards but pay the balance in full every month. For the first time, Fannie Mae will now be using this trended data as an overlay to the FICO score. So, if you have an excellent score (because of low utilization) but never pay your balance in full, you could find it more difficult or more expensive to get a mortgage.

How Do I Get a Good Credit Score (Regardless of the Version)?

All of this information can seem intimidating. But my advice remains simple. Only spend on your credit card what you can afford to pay off in full and on time every month. Pay your bills on time. If you do those two things consistently over time, you will likely qualify for the best deals at any lender.

What If My Mortgage Is Not Purchased by Fannie Mae or Freddie Mac?

If you are not applying for a Fannie Mae or Freddie Mac mortgage, the credit score is likely at the discretion of the lender. For example, a bank might have a Jumbo Mortgage product that will be retained on its own balance sheet. That bank will likely create its own custom credit scoring model for underwriting. You can certainly ask your loan officer in advance what credit score the bank uses to make decisions. But it will vary.

Banks generally use some version of FICO in their underwriting decisions. However, it could be variable in the scoring model, or it could be used in a decision matrix along with a custom score or other rules.

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