Mortgage Credit Scores 101

Mortgage Credit Scores and Importance In The Mortgage Industry
Credit scores are very imperative when it comes to mortgages. Your credit score can help determine what your monthly payment will be and what you are approved for. Once your credit is pulled, you will then find out your true and actual credit score.

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Mortgage Credit Score 101

Mortgage credit scores vary from automobile or other types of loans. Each score pulled can be different. We use three different credit pulling agencies. Those agencies are: TransUnion, Experian and Equifax. These are the most well known and commonly used agencies.
Automotive loans will typically only use one of the scores because they pull from one repository. Whereas mortgage companies take the middle score of the three that are pulled, which is called a tri bureau merge. Each agency will calculate your score and report your monthly credit balances and payments along with your payment history. This is also used to calculate your debt to income ratio.
In some cases there can be incorrect information on your credit report that is pulled by one or more repositories. In some cases also you may have already paid a creditor in full but it will still show a balance outstanding and has not been updated. If this is the case then all you need to do is provide sufficient documentation showing where it was paid and we can help clear that up with you.
Now if there is issues where you may need to dispute the validity or the balance on the debt, you will need to handle that immediately. You can contact your original creditor and ask for verification of the debt. You may also contact the credit reporting agencies and start a dispute with them where they inturn will contact the original creditor on your behalf. It is imperative to initiate the dispute as soon as you catch it though so it can be cleared up if the information is incorrect.

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Mortgage FICO Score

The FICO score in the mortgage industry just means your middle credit score. So, for example, if you have scores of 747, 751 and 722; your FICO score is 747. This is the score that will be used when calculating your mortgage loan.
In the mortgage industry there also can be something called an add-on. This can be also known or heard of as a hit or an adjustment in this industry. There can be add ons to your mortgage interest rate depending upon your mortgage risk. Your credit report is also used in the mortgage risk calculating. An example would be on a 720 FICO score with 20% equity when refinancing your loan, the add on would be .250%. This can be paid upfront along with your closing costs or you can increase your interest rate to pay it or simply just add it into your loan.
If you paid this amount at your loan closing then it would be more than almost all of your other closing costs. If you used the rate to pay, or added within your loan, you would need to increase your credit score more than a full point to cover the add on.
Most lenders or mortgage finance companies will not take a client with a credit score of under 640. In some instances you will find a mortgage company who will accept a score of 620 but nothing lower. The biggest hurdle of having a low credit score, aside from getting approved, is getting through the underwriting process of the loan.
When there is a spouse involved or a second person to be listed on the mortgage this could hurt or help you with your loan. The lowest of the middle credit scores will be the score used. For example, you have credit scores of 718, 723 and 736. Your spouse has scores of 663, 682 and 651. Your mortgage FICO score would be 723 and that is the score that will be used for calculating your mortgage and loan.
FHA mortgages have a broader credit score requirement range. The credit score literally stops at 620 and you will need at least that score to be qualified and approved. The add on amounts are much less with these types of loans than the Fannie Mae Mortgage option or going with a regular conventional home loan. VA loans have the same credit score requirements as well.

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Mortgage Loan Credit Score Enhancer

There are several ways that you can raise and improve your credit score. One tip is to have at least three open credit accounts with a balance on them. Examples could be a mortgage loan, credit card or auto loan.
Credit repositories, the credit pulling and scoring agencies, actually like accounts for automobile loans and mortgage loans because they have something called a repayment term. They are also known as installment loans. This is a type of loan in which you will make a monthly installment or payment each and every month.
When having credit card accounts try to keep the balance below 50% of your credit limit. Your credit score will decrease when your balances are too high. Another tip when it comes to credit card accounts is to always pay more than your minimum payment amount. But the most important thing to make sure on these accounts is to never make a late payment.
You can start by knowing your credit score and analyzing it yourself! You can start making small improvements to raise your score, even if not low, before you even think about purchasing or refinancing a home. Here is a small example key of some credit scores:
· 740 and higher is an excellent score
· 700-740 is a good credit score
· 660-700 is a fair credit score
· 620-660 is a poor credit score.

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