You probably have a lot of questions about what determines whether you can obtain favorable terms for your mortgage or even get approved for one at all as you prepare to start the mortgage and homeownership process. Your credit score is one of the key factors a mortgage lender will take into account when determining whether you qualify for a mortgage.
The credit score you see for yourself, however, and the score they use to assess your creditworthiness aren’t always the same. It’s crucial to comprehend which credit scores mortgage lenders will look at during the approval process in order to make the strongest case for favorable terms on your loan.
What Are The Different Types Of Credit Scores?
Credit scores are not the same across the board; in fact, three major credit bureaus manage each individual’s credit score, and each bureau conducts the process slightly differently. This results in slightly variable credit scores among the three. Experian, TransUnion and Equifax are the three bureaus in charge of managing credit scores, and each one will keep a score for you, regardless of whether you have previously conducted any business directly with them.
In addition to the unique methods each bureau uses to determine a credit score, FICO (an acronym for Fair, Isaac and Company) has developed specific models that each bureau uses to determine credit scores. Mortgage lenders will review all three of the credit bureaus’ reports when pulling your credit score.
Which Credit Scores Are Mortgage Lenders Primarily Interested In?
When determining your likelihood of getting a loan approved, the lender will request a credit score from each of TransUnion, Equifax, and Experian. The FICO® Score 2, also known as the Experian/Fair Isaac Risk Model v2, the FICO® Score 5, also known as the Equifax Beacon 5, and the FICO® Score 4, also known as TransUnion’s FICO® Risk Score 04, are the three scores that will be specifically examined.
Each of these scores can range, typically within less than about 80 points of each other, and most mortgage lenders will take the middle score as your assigned credit score. This may change slightly if you are applying jointly with someone else, in which case they will often evaluate all scores involved and choose the lower of the middling ones.
Keep your credit score in this middle range at least at 580 if you want to increase your chances of getting a mortgage loan. If your credit score is below this, it could have a significant impact on how favorable your mortgage terms are (e.g., only allowing you to qualify for loans with high interest rates), or it could prevent you from getting a loan at all. Your credit score affects how favorable a loan may be. Scores of at least 700 are regarded as excellent, while those of 800 or higher are exceptional.
Small Changes That Can Impact Your Credit Score
There are a few things to be aware of if you want to raise your credit score before applying for a mortgage or if you intend to make specific purchases while buying a home. Strong ways to improve your credit include paying off credit cards on time, keeping up with debt payments, and not using a lot of credit.
One of the worst things a person can do when buying a home is to start putting furniture and other things on a credit card in order to get ready to move in. This will raise your debt to income ratio, which could have a negative effect on your credit score as well as how lenders view your overall financial situation.
Inexperienced buyers frequently find themselves denied during the later stages of the purchase process after receiving preapproval and starting to charge expenses for their new home on their credit card as a result of the subsequent credit and financial solvency evaluations.
Talk To The Mortgage Pros For Guidance During The Loan Process
If you are trying to secure a favorable home loan for your real estate purchase and are concerned about your credit or would like to learn more about your options given your current creditworthiness, be sure to talk with a real estate and mortgage financing expert.
The experts at Fairfax Mortgage Investments would be delighted to assist you in obtaining favorable terms on your mortgage and to get you ready for the home closing process. Make contact to arrange a meeting so that you can discuss your situation and create a plan that will put you in the best possible position to make this crucial financial decision.
FAQ
Can FICO 8 be used for mortgage?
Base FICO® Scores, like the FICO Score 8, are made to forecast the likelihood of failing to pay any debt, including credit card debt, student loans, and mortgages, in the future.
Which FICO score do auto lenders use 2021?
The most recent version is FICO® Auto Score 10, which was released in 2020 (as of this writing). FICO® Auto Score 2, FICO® Auto Score 4, FICO® Auto Score 5, and FICO® Auto Score 8 are still widely used by auto lenders.
What credit score is needed for a 2021 house?
When you apply for a conventional loan, it is advised that your credit score be 620 or higher. Lenders may not be able to approve your loan or may be required to offer you a higher interest rate if your score is below 620, which could result in higher monthly payments.
What FICO credit score can qualify for the best mortgage rates?
A credit score of 700 or higher will typically result in a borrower receiving a lower interest rate, and although mortgage experts claim you can still qualify for some loans with a score below 680, the 700s are where you can expect to pay the lowest rates.