Shopping overview -> Credit score

Credit score

You will need to have a lender run your tri-merge residential mortgage credit report to get an accurate rate quote.

If you use an online service like myfico.com you cannot rely on that score. All lenders use a tri-merge residential mortgage credit report which pulls from the three major credit reporting agencies: Trans-Union, Equifax, and Experian. Lenders use the middle of the three scores to determine whether you qualify and to price the loan interest rate and fees. If there is a co-borrower, the lender will use the lower middle score of the two borrowers, regardless of which borrower has the higher income. Have one lender – and only one - run your credit early in the process and send you a copy of the tri-merge report.

FREQUENTLY ASKED QUESTIONS:

Will running my credit report lower my score – How important is this?

All three credit reporting agencies use confidential, proprietary algorithms to determine your credit score. Inquiries are one factor, but consumer credit inquiries – from an automobile dealer or a department score, for example – will affect your credit score much more than an inquiry from a mortgage lender. If you are right on the edge of a pricing tier cutoff, the impact of a consumer credit inquiry can be substantial. For example, Fannie Mae currently has a price improvement for a middle credit score of 740 or above. If I wanted to lock in a $400,000 loan for a borrower with a credit score of 739, on the day I wrote this, a no-point rate would have been 4.50%; if the score was 740, the interest rate would still have been 4.50%, but the borrower would have gotten a credit toward closing costs of $1500. That’s right – $1500 for a one-point move in the credit score.

To be on the safe side, when you are getting a mortgage have your credit run as little as necessary. You will, however, need at least one lender to run it when you start shopping for two reasons: you need to know if there is anything on the report that might cause a problem, and you need that tri-merge middle score to get an accurate rate quote.

Can I raise my credit score?

Often you can raise your score. Paying credit card balances off, or paying them down to less than 50% of the credit limit showing on your credit report may help. Most mortgage brokers can work with the credit report agencies to do what is called a ‘rapid rescore’, and it may be possible to get a credit score raised within two weeks.

Can I get inaccurate items removed?

You may be able to get a derogatory item removed. There are two primary ways to do this. One is to get an unambiguous letter from the creditor, which includes your name and the complete account number, stating that the delinquency was reported in error and should not be on your credit report. A lender who works directly with rapid rescore can use that letter to get your score changed very quickly. A note of caution, in bold for good reason: creditors will often tell you that a letter isn’t necessary, that the correction will be reported to the credit bureaus directly. However, it often isn’t reported, and even if it is reported it can take months to show up on your credit report. You have to get the letter from the creditor to effect a quick change in your score.

The second method for getting an item cleared is to engage a reputable company which specializes in working with creditors on credit issues. These companies are effective because they know and understand the credit reporting rules and regulations; if they determine that the rules haven’t been followed to the letter, the reporting agency is often compelled to remove the delinquency.

What if I have a bankruptcy, foreclosure, or short sale on my report?

You may be able to get a derogatory item removed. There are two primary ways to do this. One is to get an unambiguous letter from the creditor, which includes your name and the complete account number, stating that the delinquency was reported in error and should not be on your credit report. A lender who works directly with rapid rescore can use that letter to get your score changed very quickly. A note of caution, in bold for good reason: creditors will often tell you that a letter isn’t necessary, that the correction will be reported to the credit bureaus directly. However, it often isn’t reported, and even if it is reported it can take months to show up on your credit report. You have to get the letter from the creditor to effect a quick change in your score.

The second method for getting an item cleared is to engage a reputable company which specializes in working with creditors on credit issues. These companies are effective because they know and understand the credit reporting rules and regulations; if they determine that the rules haven’t been followed to the letter, the reporting agency is often compelled to remove the delinquency.

For all three of these situations, how long it has been since the incident is critical. In the last year there has been a gradual thaw in the lending climate, and the required time since the incident and when a borrower can get a new mortgage has been shortening. A good lender will be able to give you the latest guidelines. If you have a difficult issue like this, a mortgage broker with many different lending options may be your best source.

If a credit issue has lowered your score, you may be forced into a more expensive loan or have to wait to buy or refinance until your score improves. These are some of the reasons why it is important to know where you stand, and what you and your lender might do to improve a low score.