Credit Score Reviews In Mortgage Lending is an important aspect for you to know exactly how it is done.
The credit score reviews in mortgage lending are completed as mortgage lenders/underwriters and mortgage lenders use a different format than the bank does.
Mortgage Lending Scores That Are Used
Many different factors go into your credit scoring. Your credit score is not one score, it is made up of three. The score that is used for your loan needs, depends upon the product, loan type, you are seeking.
In mortgage lending, usually, the middle score (called the representative score) of the three bureaus. If there is not a middle score, then the lower of the two scores are used.
The middle score (or lower of two scores) determines your capacity to pay back the debt in a consistent manner. One important note is to always know what is going on with your credit and scores.
If there are two applicants, the lowest score of the two is used.
In personal loans- installment financing (a bank loan), normally a bank will only pull one score. That depends upon the credit bureau they use, and what the score may be. If they choose to, they could pull another score.
How The Credit Bureau Reviews Your Credit Lines and Determines The Scores
Several factors evaluated by the credit bureaus help to determine your final score for each bureau. Find the phone numbers for bureaus here.
- How much total debt you have, and the type of debt you have
- The balance of each **revolving change account to the maximum
- Your **utilization rate, and how frequently you charge
- Your consistency of paying as agreed, or late payments
- How many revolving charges do you have
- Installment versus revolving * installment have an amortized payment
- *this is not an exclusive list
Before applying for a loan, check your score or scores with the bureaus. There are free places online that will give you your score and they will keep you updated if something unusual happens.
How Can You Improve Your Credit Scores?
More on how to improve your score here…
- The number one incentive is to always pay your credit obligations in a timely manner. Meaning before or on the due date. The bureaus measure the number of obligations/credits that you have.
- Do not go to 10 loan agencies to inquire about a loan. They will pull your score and inquiries will affect your score and the lender will wonder why you have gone to that length for credit.
- Make sure you pay your taxes so that you do not have tax liens showing on your report.
- Keep revolving accounts to a minimum.
- If you have had prior credit issues, late payments of more than 1 or 2 x 30, 3 x 30, etc. a waiting period of at least 24 to 36 months for minor occurrences to apply for a mortgage. For a Chapter 7 or 11 bankruptcy, the waiting period is 4 years from the date of discharge or dismissal. Two years may be acceptable from the date of discharge or dismissal, only if extenuating circumstances can be documented.
- For a Chapter, 13 – 2 years from the discharge date (no exceptions), or 2 years from the dismissal date is acceptable if there were extenuating circumstances of the occurrence.
Prior to Applying For a Mortgage Loan:
If your balance is close to the high balance of a revolving loan, you can NOT pay down your balances near your time of application. It is best not to do this all at once, or near the mortgage application date. This should be done about 60 to 90 days prior to application.
- Important: You cannot pay down debt to qualify for a loan if you have already started the process. Meaning to make your debt to income ratio lower. If you are working to get your credit score higher, you can do this a little at a time. If you have done this prior to the past 60 days…then you may be okay.
This is because the lender will be checking to see if you have used funds from a new loan, a gift, or another source within the past 60 days at least.
Of course, the less debt you have currently is helpful; however, if you pay off a debt in full within 60 to 90 days, the documentation is required with an explanation. It is only wise if you can document the funds used to pay off the debt. You must have a paper trail of deposited funds and the source of those funds.
It can be paycheck deposits, (copies of direct deposit or check deposits) saved funds, gifts, or other acceptable documented funds. Another loan is not acceptable unless it is a secured loan for consolidation purposes. I cannot stress that enough.
Incorrect Items on Your Report:
If you have something that is not accurate on your credit report, you must gather the documentation and send it to the bureau to get it cleared up. It is possible this can be done by a phone call if it is a name error or social security number.
Tax Liens, Judgments, and Court Orders
Tax liens if applicable must be paid prior to closing a loan. The main reason is lender does not want a lien on the property, and many of these items can become a lien on your property. **This is very important for credit score reviews in mortgage lending and something that some people forget.
All documentation must be preserved for the funds used to pay off any lien, judgment, etc. A full paper trail of the funds is required, especially if this is done within 90 days. An agreement in place may be an exception for anything other than the tax lien so that it is counted in your debt to income ratio.
All negative items should be addressed, and the bureaus will help you do that. It is not always a quick process, but this will put you in a better position if needed.
*WHAT TO REMEMBER:
Credit companies do not always report a change immediately. Some may report monthly, others every two to three months. If you were looking to purchase a home, it would be wise to ask the company you are working with to report the corrected changes to the credit bureau.
However, if a loan has not been updated, the lender can get their bureau to have the account updated. However, this could require the documentation mentioned above.
EndNote
This is not all-inclusive, but some necessary issues on how credit scores are determined in mortgage lending. Some of this information will help to make your mortgage application process go faster, and more smoothly.
There are times when your credit has gotten so out of hand and you may need other alternatives. Listed here is a source that may help. National Debt Relief – you may qualify without having to make other decisions.
*see our Disclosure regarding links within our site and the bottom of this page.
