It's More Than Just a Number

“I have a 700 FICO!” You’d think such words would be music to a mortgage advisor’s ears. Maybe, but maybe not. Credit scores are important, but a home loan credit pre-approval is concerned with so much more than just a number.

Credit scores were put in place to help predict which consumers would experience a credit default in the coming twenty-four months, by examining their credit usage. Years of data were analyzed to come up with profiles of how consumers behaved right before their credit started to turn for the worse. These formulas continue to be revised over time as new data becomes available.

Generally speaking, a credit score of higher than 620 would qualify you for a home loan. Higher is better, and those with scores greater than 740 usually get better loan terms.

Here’s the rub: We’re not just looking at your credit score. We’re looking at what’s “in” the score to determine home loan pre-approvals.

For example, if you’ve had a bankruptcy in the past two years, even with a good credit score, you’re not getting a home loan. If you’ve had any kind of mortgage default, by modification, short sale, or foreclosure, in the past three years, you’re not getting a home loan.

If you have only two credit trade lines making up your credit score, or if you have very new credit, even a high score may not be a ‘qualifying’ score. This means there is not sufficient data, or credit experience reported, to convince the lender you have enough track record of making payments on time. Same idea if your score is made up of ‘authorized user’ accounts. That’s when someone else puts you on their already-established credit accounts so you can piggy-back off their payment history.

What’s the best way to see where you stand? You can get your credit report for free once a year at AnnualCreditReport.com, and it’s a good idea to do so. However, the free report won’t tell you your credit score.

Avoid all the free offers for credit scores, since the number you will see is not indicative of the scoring model used for mortgage credit reports.

The closest you can get to what your mortgage advisor sees is by buying your score(s) at MyFICO.com. Inside the report you’ll also get the means to dispute any incorrect accounts, and a calculator to help show you what actions to take to make your score better. Make it your new year resolution to have a look and know where you stand.

Tammy Engel has been working for your best interest since 1990. Contact her at 661/822-REAL for help with purchase, refinance, and reverse mortgage.