Mortgage Credit Scores Used By Lenders To Qualify Borrowers

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This BLOG On Mortgage Credit Scores Used By Lenders To Qualify Borrowers Was UPDATED And PUBLISHED On January 24th, 2020

Why mortgage results are used by lenders to qualify borrowers

We all know the importance of credit scores when it comes to the mortgage application process.

  • Borrowers get confused and do not know why lenders require credit scores and credit reports from the three major credit reporting agencies
  • What are credit scores and which credit score do mortgage companies use in qualifying a borrower for a home loan is the topic we will cover on this blog

In this article, we will cover and discuss the credit scores used by lenders to qualify borrowers.

Credit Reports And Mortgage Credit Scores Used In Mortgage Process

When borrowers complete a mortgage application, lenders will pull their credit reports from the three major credit reporting agencies.

  • The lender with getting three credit scores from each of the credit reporting agencies
  • Credit scores used by lenders differ than regular consumer credit scores
  • Mortgage scores are mainly used for qualifying borrowers for home loans
  • The three credit scores is for each loan borrower
  • If a borrower has a co-applicant, there will be a total of 6 credit scores;
    • 3 credit scores for each borrower

Credit Reporting Agencies

What exactly do credit reporting agencies do?

Lenders will pull a tri-merger credit report on mortgage applicants. Each credit bureau has a separate credit score for each consumer. Lenders will use the middle credit score to qualify borrowers.

Here are the three credit reporting agencies:

  • TransUnion
  • Experian
  • Equifax
  • Each credit reporting agency will have different credit scores for each borrower
  • Lenders always use the middle credit scores in qualifying mortgage applicants

Case Scenario On Mortgage Credit Scores

For example, here is a case scenario:

  • Let’s use a case scenario where James Jones had a Transunion credit score of 710
  • an Experian credit scores of 650
  • and an Equifax credit scores of 595
  • Lenders will use the middle credit score.
  • Experian score of 650 FICO is the middle credit scores for James Jones
  • This is the credit score that will be used

Co-Borrowers On Mortgage Loan

What a borrower wants about a mortgage

Now, the co-borrower, Jill Jones has Transunion credit scores of 680,

  • Experian credit scores of 620, and Equifax credit scores of 565
  • Jill Jones’s middle credit scores are 620
  • James Jones middle credit scores are 650
  • Co-borrower Jill Jones middle scores are 620
  • Now what! 
  • Which mortgage credit scores will the lender use in calculating credit scores in this particular mortgage loan? 
  • The answer to this question is the lender will always use the lower of the two borrower’s credit scores
  • So in this case, the lender will be using the lower credit scores of Jill Jones, which is 620 FICO

So out of a total of six credit scores, we now came to one credit score in qualifying for a mortgage loan.

NON-QM Mortgage Guidelines

Gustan Cho Associates offers non-QM loans and bank statement loans for self-employed borrowers. NON-QM Loans have different lending guidelines than government and/or conforming loans. Gustan Cho Associates will use the middle credit score of the main borrower and NOT the lower middle credit score of the lower credit score borrowers/co-borrowers. There are quick fixes to boost credit scores. Borrowers with lower credit who need help to qualify for a mortgage with bad credit, please contact us at Gustan Cho Associates at 262-716-8151. Or text us for faster response or email us at gcho@gustancho.com.

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