FICO Credit Scores Requirements To Qualify For Mortgage Loans

FICO Credit Scores Requirements To Qualify For a Mortgage

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers about FICO credit scores to qualify for a mortgage loan. Every  mortgage loan applicant who has applied for credit and has had credit, whether good or bad, has a credit score. The FICO score is a mathematical scoring formula that consists of several variable factors to determine a person’s credit risk level. FICO stands for the Fair Isaac Company who has created the FICO credit scoring model. In the following paragraphs, we will cover FICO credit scores to qualify for a mortgage by lenders of home loans.

What Are FICO Credit Scores Used For?

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Credit scores are mainly used for evaluating a consumer’s creditworthiness by yielding a certain numerical score which is derived by the information which is contained in the person’s personal credit report with the combination of the person’s debt-to- income ratio. The lowest credit score a person can have is 300 and the highest FICO credit scores a person can have is 850. A good credit score is 720. FICO credit scores of 660 or lower signal that a person’s credit is poor and with that score, the person will have trouble in obtaining credit and if they do, they will most likely pay a high interest rate. The lower your FICO credit scores, the higher the credit risk you are.

What is FICO Credit Scores So Popular and Used by Lenders

FICO credit scores are among the most popular and commonly used credit scoring models mortgage lenders use. The Fair Isaac Corporation develops FICO credit scores. Many lenders use them to assess an individual’s credit risk. However, there are other credit scoring models, each with methodology and criteria for assessing creditworthiness. Here’s a comparison between FICO credit scores and some other prominent credit scoring models:

VantageScore versus FICO Credit Scores

VantageScore is a credit scoring model developed by the three major credit bureaus. Like FICO credit scores, VantageScores range from 300 to 850, with higher scores indicating better creditworthiness. VantageScore uses criteria similar to FICO, such as payment history, credit utilization, length of credit history, credit mix, and new credit accounts. However, it may weigh these factors differently.

Credit Karma

Credit Karma offers free credit scores and reports based on data from the credit bureaus TransUnion and Equifax. Their scoring model is based on the VantageScore model and gives users an estimate of their creditworthiness.

TransRisk Score

TransRisk Score is another credit scoring model developed by TransUnion. Like FICO and VantageScore, TransRisk Scores range from 300 to 850 based on similar criteria. However, the specific algorithms used may differ, leading to variations in scores between the different models.

Experian’s PLUS Score

Experian offers a credit scoring model called the PLUS Score, based on data from the Experian credit bureau. It also ranges from 300 to 850 and evaluates factors similar to FICO and VantageScore. While these credit scoring models use similar criteria to assess creditworthiness, they may weigh these factors differently or use slightly different algorithms, leading to score variations. It’s essential for consumers to regularly check their credit scores from multiple sources to get a comprehensive understanding of their credit health. Additionally, lenders may use different scoring models depending on their preferences and the type of credit they are extending.

 Click here to get approval for a home loan

FICO Credit Scores versus Other Credit  Scoring Models and Platforms

Mortgage lenders commonly use FICO credit scores to assess the creditworthiness of potential borrowers. FICO credit scores are provided by the Fair Isaac Corporation (FICO). FICO credit scores are based on credit information from FICO lower credit risk. For mortgage lending purposes, different lenders may have slightly different criteria for what they consider an acceptable credit score. However, in general, here’s how FICO credit scores are commonly categorized in mortgage lending:

  1. Excellent Credit: 800 and above
  2. Very Good Credit: 740 to 799
  3. Good Credit: 670 to 739
  4. Fair Credit: 580 to 669
  5. Poor Credit: 579 and below

Mortgage lenders typically prefer borrowers with higher credit scores because they represent lower risk: interest rates and better terms on their mortgage loans. It’s important to note that while credit score down payment size. Additionally, some lenders offer specialized mortgage programs for borrowers with lower credit scores. However, these may come with higher interest rates and stricter terms. FICO credit scores is not the only credit scoring model out there. Not all creditors and lenders use the FICO credit scores.  However, other credit scoring models are very similar to the FICO credit scores

Credit Score Composition

Below is how your FICO credit scores is derived:

  • Past payment history consists of 35% of overall credit score
  • The amount of debt owed versus the available credit is 30% of the overall credit score
  • Length of time consumers has had credit consists of 15% of the overall credit score
  • New credit application consists of 10% of the overall credit score
  • Credit type consists of 10% of overall credit score

Always Be Aware of FICO Credit Scores

FICO Credit ScoresRemember that higher credit scores mean lower interest rates, which means saving money.Higher FICO credit scores can save thousands of dollars in mortgage interest expenses and other interest expenses. Borrowers with a higher credit score mean lower insurance premiums. Folks with bad credit scores not only pay much more than those with higher credit scores.  You do not need a credit repair company. You should try to maximize your credit scores a few months prior to applying for a mortgage. Just paying down credit card balances will skyrocket credit scores.

The lower credit scores could mean job denials and not being able to get promoted due to credit background checks. Please visit us at Gustan Cho Associates, the one-stop mortgage and real estate information center.

Check out our credit rebuilding and reestablishing program and the credit repair blogs. Do not hire any credit repair companies to repair your credit. Credit repair companies are a waste of money and will do more damage than good if you are planning on applying for a mortgage. Credit disputes are not allowed during the mortgage process unless the credit disputes are exempt disputes.  Click here to get approval for a home loan with low credit scores

Contact Us To Qualify For a Mortgage

The team at Gustan Cho Associates are experts in helping our clients rebuild and reestablish their credit. We have helped countless clients rebuild and reestablish their credit scores after bankruptcy. We have some simple quick tips in getting your credit scores over 700 FICO in less than one year after the Chapter 7 Bankruptcy discharged date. We highly recommend consumers enroll in a credit monitoring service like Credit Karma. This service is invaluable in monitoring your credit report. The credit monitoring service will alert you via email and/or text if there are any changes in your credit report such as a hard inquiry or addition of credit tradelines. The key is to make sure you pay all of your monthly debts on time. Never be late. Monitor your credit report and scores like you are monitoring your bank account. 

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