Tuesday, 4 February 2020

What Credit Score Do Mortgage Lenders Use?

What Credit Score Do Mortgage Lenders Use?

What role does a credit score play when you get ready to buy a house? That's a really good question. I have seen a lot of questions from people saying, what credit score is the lender going to use and what if I'm doing this like a co-applicant perhaps my spouse or significant other and their credit score isn't quite as good. Let's take a closer look at what credit score a lender is going to use.


Let's Get Started


The 3 Main Scorers

The first thing to know is that there are three main credit reporting bureaus 


  1. Equifax
  2. Experian
  3. TransUnion

Each of them will have their own credit score model that they're using right now to gauge your credit, and that's when sometimes you got a credit score of 750 and a different one said 700 and then there was one of 725. Your spouse's said they were down as low as 580 and then they had a 600 and a 620, well, this is really important to gain insight and clarity on.

Because when we're wondering which credit score a lender is going to use they're going to use the middle score. But which one is it going to be, the higher score or the applicant with the lower score and this is why it's so important to have this conversation now before going into getting a mortgage, so that if you need to work on your credit score you have the opportunity to do it.


How Important Is That Credit Score?

The second thing you should know is what role is that credit score is going to play when you do your mortgage applicant. And this is very, very important to know, if you do have that credit score that's like 700, 750, maybe you even have like 800, I always hear people with good credit say they know they can get approved for a mortgage of whatever they want. Not so fast.

You see, the credit score isn't a determining factor and how much home loan you can get. It's a determining factor of what credit risk you present to prospective lenders. so when a mortgage lender looks at your credit, they're not gauging your credit by how much home loan you can get, in reality, what they're doing is they're assessing what kind of credit risk you provide, in other words, they're going to deep dive into the past history of your credit report and they're going to say, hey, how many times has this person applied for credit, how many times is this person over-leveraging themselves, what are their debt to income ratios on their credit card, signature loans or any other type of loans that you have. They're going to take all of that into consideration. 


The role of the credit score itself is which loan program you're going to be able to qualify for, how many different loan programs are going to be able to qualify for and what mortgage interest rate will you be able to get.
Obviously, the higher your credit score, the better the loan rate and terms that are going to be provided to you because you've earned it, because you're a reduce credit risk to the lender. 
  • I just want to be very, very clear that your credit score does not impact how much home loan you can get. It impacts whether you can get qualified or not as a credit risk factor.

That's why the mortgage lender is going to be looking at all your different credit reports and when they're looking at which number to use, they're going to use the middle numeric number. Going back to our earlier example, if you have a credit score at 750 a 725 and a 700, the mortgage lender is going to use the 725 scores. In the case of the spouse that may have the 580, 600 and the 620 credit score, they're going to use the 600. 

The RMCR

There are hundreds of credit scores but the lenders are going to use what they call an RMCR, and RMCR is essentially a "Residential Mortgage Credit Report" or they will call it (Tri-Merge Report) which is much easier for your lender to read and review. Your rmcr is going to list the three of your credit score in all of your credit report information


  • Equifax.. 702
  • Experian. 720
  • TransUnion. 735

Because the score can range from 300 to 850, then your score is going to fall somewhere within those two boundaries as we well know, the mortgage underwriting is going to be based on the middle of these three scores as we've already talked about. EXP. 720.

When they're going to be reviewing this it's important to know that's what they're looking at, if you were looking at Credit Karma right now or one of the other services available, make sure that your middle numeric is a 725 from your significant other as a 600 but, the mortgage lenders are going to be looking at what's called tri-merge report, and the reason that becomes important is that with those hundreds of credit score our there, your credit score for applying for a mortgage could actually be higher than what you realize because there are hundreds of credit scores out there.


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