Mortgage Credit Scores

The bulk of the questions I receive from clients revolve around credit scores. There are several questions I hear regularly. How will pulling my credit affect my score? What are the minimum score requirements? Which bureaus do you check? Why do your scores not match what I see online? and What can I do to improve my score? I’ll dive right into the best answers to these questions below.

How will this affect my credit score? Generally, having your credit pulled by a mortgage lender will lower your score from 0-3 points. It’s very different from having your credit pulled for a credit card, car, or personal loan which can have a much larger negative effect. Also, once you have your credit pulled by a mortgage lender you have a window of 45 days to have your credit file pulled by multiple lenders, and your score is only affected once. This enables shoppers to compare loans with multiple lenders without destroying their scores.

What are the minimum score requirements to get a mortgage? This is going to vary a bit depending on the loan program you are using and from lender to lender. Generally, for an FHLMC or FNMA conventional loan, you will want your credit score to be 700+. A conventional loan can be done with a lower score, but monthly mortgage insurance premiums that are figured into your payment will be VERY expensive with a lower credit score. FHA and VA Government loans can be approved with much lower credit scores ranging from 540-620 depending on your lender. A word of caution – If your score is below 620, expect to bring more cash to closing. Price adjustments to these loans for lower scores will make them more expensive!

Where do the scores you use come from? Most mortgage lenders use your mortgage FICO (short for Fair Isaac Co.) score. The three credit bureaus these scores are pulled from are Experian, TransUnion, and Equifax. Out of these three scores, most loan programs require us to use the middle score or your “mid FICO”. There are several algorithms used to imitate the FICO score by different companies to give you a fairly accurate idea of what your score is. Some of the more popular sites for this include Credit Karma and Credit Sesame. Don’t be surprised if your actual FICO score from a mortgage lender is different from what you see at these sites. It’s not unusual for there to be a 20-point difference, positive or negative.

How can I improve my credit score? First, make all of your payments on time. Do not use your grace period and, if anything, make sure your payments for all of your credit obligations are paid early. Second, when you pay off a revolving account (credit card) don’t close it! Having available revolving credit that you are not using helps your credit score. Third, on the credit cards, you are using make sure your balance is less than 30% of your available credit. Lastly, if you have credit issues that you are having trouble addressing, find a lender with the resources to help you build a path from where you are to where you want to be.

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