Quick Mortgage Tips – How Lenders Evaluate your Credit Score

May 22, 2007 No Comments »

Banks and mortgage lenders use credit scoring as a major factor to determine what mortgage rate you’ll receive and whether you’ll qualify for their loan programs to begin with.

Typically, lenders will pull their own credit report regardless of whether you yourself pulled credit, or if your loan officer or mortgage broker provided a credit report to the lender. They do so to eliminate fraud and any possible mistakes or omissions made by an alternative credit reporting provider.

Most lenders pull a tri-merge credit report which contains credit scores from the three major credit bureaus. If they do pull a tri-merge credit report, they will use the middle score. So even if you’ve got a great high score, it’s your middle score that’s ultimately used to determine financing terms and eligibility.

Another important issue to consider is that when providing full documentation, that is, tax returns or another form of verifiable income, the middle score of the primary wage earner will be used.

This is not the case with all other types of loan documentation such as stated income loans where the lower middle of the two borrowers is used regardless of who is the primary wage earner.

This can help or hurt you depending on who has the higher credit score. If you and your spouse apply for a loan, and the breadwinner has a middle fico score of 620 and the co-borrower has a middle score of 720, the 620 will be used. The opposite is true if the borrower with the 720 middle score is the breadwinner.

Lenders allow this on the basis that the person making more money will ultimately be more accountable for the loan, and thus their credit score is more indicative of how the loan will be repaid.

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