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What Score Do Mortgage Companies Use

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What Does An Equifax Credit Score Of 658 Mean

What Credit Score Do Mortgage Lenders Use?

A credit score of 658 means youre categorised as having a Poor credit score on Experian. That means most mortgage lenders wont offer you a mortgage. To get information on how to improve your credit rating before applying for a mortgage, read our Guide: How to improve your credit score before you apply for a mortgage.

Which Fico Score Is Used For Mortgages

Most lenders determine a borrowers creditworthiness based on FICO® scores, a Credit Score developed by Fair Isaac Corporation . This score tells the lender what type of credit risk you are and what your interest rate should be to reflect that risk. FICO scores have different names at each of the three major United States credit reporting companies. And there are different versions of the FICO formula. Here are the specific versions of the FICO formula used by mortgage lenders:

  • Equifax Beacon 5.0
  • Experian/Fair Isaac Risk Model v2
  • TransUnion FICO Risk Score 04

If you want to dig into the regulations for Freddie Mac and Fannie Mae to see the source of this information, you can do so here and here. But be warned, its like trying to drink water from a fire hose.

Lenders have identified a strong correlation between Mortgage performance and FICO Bureau scores . FICO scores range from 300 to 850. The lower the FICO score, the greater the risk of default.

Resource: Get all 3 FICO scores from the major bureaus directly from myFICO

Why Do Credit Scores Matter

Ultimately, your credit score is important in many ways. To give just a few examples:

  • Your credit score determines the types of loans you can get
  • It determines the mortgage interest rates you pay
  • It affects how large of a house or how expensive of a car you can afford
  • Insurers in most states use credit scores to set premiums for auto and homeowners coverage. Policyholders with bad credit scores often pay more
  • Landlords use credit scores to decide who gets to rent their apartments
  • Cell phone companies might require a deposit if your credit is too low

Whether youre looking for a mortgage or any other financial product, your credit score makes a big difference. Thats why its so important to know yours before you apply.

Recommended Reading: Does Pre Approval For Mortgage Affect Credit

What Is A Credit Bureau

A credit bureau also referred to as a consumer credit reporting agency, is a business that gathers and compiles information regarding consumers from banks, financial institutions, and other organizations, like courthouses and the Office of the Superintendent of Bankruptcy. A credit bureau uses the information theyve gathered about individual consumers and creates a credit report and score which then becomes available to a variety of lenders and other financial institutions. In Canada, there are two credit bureaus, Equifax and TransUnion, that lenders refer to when analyzing your creditworthiness.

What is the average credit score by province? .

There is a common misconception that make lending decisions, however, this is incorrect. A credit bureau is an independent third-party company that relays information between the consumer and the lender. The consumers information is made available to lenders by credit bureaus but, at the end of the day, the final lending decision lies with the creditor.

What Are Fico Scores And How Do I Get Mine

What Credit score Rating do Mortgage Lenders Use?

Your FICO® scores are credit scores. Its a sort of grade based on the information contained in your . Unlike the grades you were given in school A through F base FICO® scores generally range from 300 to 850. And the higher, the better.

Because there are three major consumer credit bureaus , each with its own version of your credit report, you can also have different credit scores. For example, you can have a FICO® score based on your Equifax® credit report, a FICO® score based on your Experian® credit report, and a FICO® score based on your TransUnion® credit report. To further complicate things, you can also have VantageScore® credit scores from each bureau.

Additionally, FICO also creates many different credit-scoring models for lenders in different industries. So your base FICO® scores may not be the same ones a mortgage lender sees if they request your mortgage-specific FICO® scores, for example.

You probably dont need to worry about all these nuances when buying a home, but you should still have an idea of what your scores look like. You can get your VantageScore® 3.0 credit scores from Equifax and TransUnion for free on .

If you want to see your FICO® scores, however, you can easily buy them online from the MyFICO website, and possibly find them for free from your bank or credit card issuer.

Also Check: How Long Is The Mortgage Process

Interest Paid By Fico Score

FICO Score

Based on the in August 2021

If your credit score is on the lower end, even a small difference in your mortgage score can make a big difference in the cost of your home loan. You could wind up paying more than 20% more each month, which can make it harder to afford a mortgage.

How Your Fico Score Breaks Down

Its important to know how your FICO score is calculated. It consists of five categories, weighted differently:

  • Payment history: This is the most important factor in your score and counts for 35%. Any lender extending a mortgage wants to see how the borrower pays his or her bills so they can assess their amount of risk.
  • Amounts owed: The second most important factor in your FICO score is how much you owe, weighing in at 30%. Also known as credit utilization, this number tells the lender how much of your available credit youre actually using. If your number is high, it could mean youre overextending. According to Experian, a good rule of thumb is to try to keep your total credit utilization rate below 30%. However, the closer to 0% credit utilization, the better.
  • Length of credit history: Lenders want to know how long youve had a credit history, and it counts for 15% of your score. Typically, a longer credit history increases your score.
  • New credit: If youve opened several credit cards in a short time, it might be a red flag for a mortgage lender. This category counts for 10% or your overall score.
  • Your credit mix the different kinds of credit you have, such as credit cards, finance company accounts, other mortgage loans, retail accounts and installment loans counts for 10% of your score. Lenders like to see that you know how to handle different kinds of credit.

FICO scores generally range between 300 and 850, and heres what those scores mean:

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Why Your Credit Score Changed

Your credit score can change for many reasons, and it’s not uncommon for scores to move up or down throughout the month as new information gets added to your credit reports.

You may be able to point to a specific event that leads to a score change. For example, a late payment or new collection account will likely lower your credit score. Conversely, paying down a high credit card balance and lowering your utilization rate may increase your score.

But some actions might have an impact on your credit scores that you didn’t expect. Paying off a loan, for example, might lead to a drop in your scores, even though it’s a positive action in terms of responsible money management. This could be because it was the only open installment account you had on your credit report or the only loan with a low balance. After paying off the loan, you may be left without a mix of open installment and revolving accounts, or with only high-balance loans.

Perhaps you decide to stop using your credit cards after paying off the balances. Avoiding debt is a good idea, but lack of activity in your accounts could lead to a lower score. You may want to use a card for a small monthly subscription and then pay off the balance in full each month to maintain your account’s activity and build its on-time payment history.

The Scoring Model Used In Mortgage Applications

What Are FICO Scores | What FICO Scores Do Mortgage Lenders Use

While the FICO® 8 model is the most widely used scoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage:

  • FICO® Score 2
  • FICO® Score 5
  • FICO® Score 4

As you can see, each of the three main credit bureaus use a slightly different version of the industry-specific FICO Score. That’s because FICO tweaks and tailors its scoring model to best predict the creditworthiness for different industries and bureaus. You’re still evaluated on the same core factors , but the categories are weighed a little bit differently.

It makes sense: Borrowing and paying off a mortgage arguably requires a different mindset than keeping track of and using a credit card responsibly.

The FICO 8 model is known for being more critical of high balances on revolving credit lines. Since revolving credit is less of a factor when it comes to mortgages, the FICO 2, 4 and 5 models, which put less emphasis on , have proven to be reliable when evaluating good candidates for a mortgage.

Also Check: How Much Is The Mortgage On A $300 000 House

Bunch Up Your Loan Inquiries

When you do apply for a home loan, the lender will pull your mortgage score from all three bureaus, which are included in a single document called a tri-merge credit report, says Ron Haynie, senior vice president of mortgage finance policy at the Independent Community Bankers of America, a trade group.

Because the Experian FICO 2 window for mortgage shopping is relatively tight, just 14 days, you’ll want keep your loan inquiries within that time frame to minimize any dings on your report if possible, says Ulzheimer.

Penelope Wang

I cover everything from retirement planning to taxes to college saving. My goal is to help people improve their finances, so they have less stress and more freedom. What I enjoy: walks through the city, time with family, and reading mysteries, though I rarely guess who did it. Follow me on .

Mortgage Lenders Pull All Three Reports But Only Use This One

According to Darrin Q. English, a senior community development loan officer at Quontic Bank, mortgage lenders pull your FICO score from all three bureaus, but they only use one when making their final decision.

“A bank will use all three bureaus,” tells CNBC Select. “It’s called a tri-merge.”

If all three of your scores are the same, then their choice is simple. But what if your scores are different?

“We’ll use that median score as the qualifying credit score,” says English. “Not the highest or lowest.”

If two of the three scores are the same, lenders use that one, regardless of whether it’s higher or lower than the other one.

And if you are applying for a mortgage with another person, such as your spouse or partner, each applicant’s FICO 2, 4 and 5 scores are pulled. The bank identifies the median score for both parties, then uses the lowest of the final two.

Also Check: What Does A Mortgage Consist Of

Can I Get A 658 Credit Score Mortgage

Yes. You can get a mortgage with a credit score of 658. If your credit score is 658 and you checked your score with Experian, it means your score is categorised as Poor, which means youll have less mortgage lenders willing to lend to you than if you had an Excellent score, but you still have options.

A Poor credit rating often means youll need a specialist lender because theyll be willing to consider your application on a case-by-case basis. Often, specialist lenders are only available through a specialist mortgage broker. Thats where we can help. We have a network of specialist mortgage brokers who can help get you a mortgage even if you have a Poor credit rating. Get in touch now and get matched to the perfect broker.

If your credit score is 658 and you checked with TransUnion or Equifax, it means you have an Excellent credit score and you should have lots of mortgage options available to you.

Why Your Mortgage Credit Score Is Lower Than You Think

Which FICO score do mortgage lenders use?

Aug 13, 2021 VantageScores are the ones that most consumers see available on free websites. But most mortgage lenders only consider FICO scores. VantageScore

Feb 27, 2020 Mortgage lenders tend to use all three of your scores from Experian, TransUnion and Equifax to evaluate you for a home loan. As mentioned,

Read Also: Is Closing Cost Part Of Mortgage

How To Improve Your Credit Scores

To improve your credit scores, focus on the underlying factors that affect your scores. At a high level, the basic steps you need to take are fairly straightforward:

  • Make at least your minimum payment and make all debt payments on time. Even a single late payment can hurt your credit scores and it’ll stay on your credit report for up to seven years. If you think you may miss a payment, reach out to your creditors as quickly as possible to see if they can work with you or offer hardship options.
  • Keep your credit card balances low. Your is an important scoring factor that compares the current balance and credit limit of revolving accounts such as credit cards. Having a low credit utilization rate can help your credit scores. Those with excellent credit scores tend to have an overall utilization rate in the single digits.
  • Open accounts that will be reported to the credit bureaus. If you have few credit accounts, make sure those you do open will be added to your credit report. These could be installment accounts, such as student, auto, home or personal loans, or revolving accounts, such as credit cards and lines of credit.
  • Only apply for credit when you need it. Applying for a new account can lead to a hard inquiry, which may hurt your credit scores a little. The impact is often minimal, but applying for many different types of loans or credit cards during a short period could lead to a larger score drop.

If I Have A Low Credit Score Do I Need A Large Income To Get A Mortgage

When a mortgage lender is deciding whether you meet their criteria for a loan, they will look at the factors that affect affordability. Your income certainly impacts your ability to repay your mortgage and having a sufficient income is important.

Lenders will look at the amount you earn against your outgoings which may include debt repayments, bills, car insurance or other travel expenses. If your current income could comfortably cover your current outgoings as well as your new mortgage repayments and any associated costs, a lender may decide to approve you.

Having a lower income that may not stretch to cover the above, may cause concern for some lenders, especially if you already have a low credit score. Your broker can take the time to listen to what you need from mortgage and can calculate the most affordable and viable route.

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Stay Away From Hard Credit Inquiries

When you apply for any conventional loan or credit card, the lender will ask one or more of the credit bureaus for a copy of your credit report. The credit bureau will make a note of this on your credit report as a hard inquiry.

Each hard inquiry on your report drops your credit score by a few points. Lots of hard inquiries in a short period of time can really damage your score. This is because a borrower who is applying for a lot of loans in a short period is probably having financial problems.

When youre thinking about applying for a big loan, especially a mortgage, make sure you try to avoid any unnecessary hard inquiries.

The good news is that most credit scoring models wont punish you for rate shopping. If you apply for a mortgage from multiple lenders within a short period of time, typically a few weeks, most models will treat all of those applications as a single inquiry.

Can You Get A Joint Mortgage If One Person Has Bad Credit

How Lenders Use Credit Score

Maybe. Remember that although it may be tempting to try applying for a mortgage with just the person who has a great credit score, most lenders will not allow this.

The first thing that a lender will consider is your relationship. If you are married, you will have to apply jointly for a mortgage. The mortgage lender will look at each credit score and credit report and make a decision based on your joint credit file.

Lenders consider your income, outstanding credit, employment status, ages, marital status, whether you have joint bank accounts and credit cards, and your experience buying property .

When you apply, you may be able to provide written reasons for your problems that have damaged your credit score. This can help your application when your credit score is bad.

Lenders are more concerned if one applicant has a low credit score due to:

Maybe. It depends on which of the credit reference agencies are being used, as well as the mortgage lender.

If you have a credit score between 561 and 720 with Experian , this is considered a poorer credit score than normal. With this Experian credit score you can get mortgages. But, you will likely have to pay high interest rates.

However, if you check your credit score with Equifax or TransUnion and it is 600, then you are in a fair or good position for applying for a mortgage.

Remember that each mortgage company also has its own lending policy. Some lenders will be more or less concerned by different aspects of your credit profile.

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