How Lenders Determine Qualifying Credit Score For Mortgage

How Lenders Determine Qualifying Credit Score For Mortgage

This BLOG On How Lenders Determine Qualifying Credit Score For Mortgage Was UPDATED On February 5th, 2018

Qualifying Credit Score For Mortgage is used for two puposes:

  1. Meet minimum credit score requirements
  2. Determine Mortgage Rates

How Credit Scores Work

Many consumers do not understand why they have three different credit scores and the purpose of having three different credit scores.

  • There are three major credit bureaus: 
    • Transunion
    • Experian
    • Equifax
  • Each one of the three giant credit bureaus have their own way of calculating consumer’s credit score
  • Each consumer will have a different credit score from each of the three credit reporting agencies
  • Mortgage lenders use the middle scores of a applicant to determine qualifying credit score for mortgage borrowers
  • For example, lets take a case scenario on how lenders determine qualifying credit score for mortgage borrowers:
    • Transunion credit score is 600
    • Experian is 650
    • Equifax is 700
  • The middle score is 650 so the mortgage lender will use the 650 as the qualifying credit score for mortgage borrower
  • Some commercial mortgage lenders will choose whichever credit bureau they prefer
  • For example, there are mortgage lenders that will just use Equifax and whatever Equifax credit score is, that will be the qualifying credit score for mortgage borrower 
  • Some auto lenders will only use Transunion and so will credit card companies
  • It is up to the specific creditor which credit score they will go by in evaluating credit

How Do Credit Bureaus Evaluate Qualifying Credit Score For Mortgage Borrowers

 Each of the three credit reporting agencies uses a different way of deriving credit scores.

  • Equifax is the only credit reporting agency that sells the FICO credit scores to consumers
  • Equifax suses the BEACON terminology to refer to the credit scores sold to other businesses
  • The Equifax credit score ranges from a low of 350 to a high of 850
  • Experian and Transunion has their own credit scores that is based on the FICO credit scoring system
  • The Experian credit scoring model is known as Experian-Fair Issac Risk Model or PLUS and their low score is 330 and highest score is 830

The Transunion credit scoring model is known as EMPIRICA and the low score for Transunion is 300 and their highest score is 830.

Both Experian and TransUnion developed their own credit score calculations based on the FICO scoring model.

How Credit Bureaus Work?

Each of the three giant credit reporting agencies collect data from consumers independently of one another and they normally share their data among each other.

  • Many creditors report their results to all three credit bureaus
  • However, not all creditors report them to all three
  • Some creditors only report to one or two out of the three credit bureaus
  • For example, if ABC Bank can report late payment of a consumer to Transunion and Experian but not Equifax
  • Equifax credit report may be higher because the late payment from ABC Bank is not being reported to Equifax

Home Buyers who need to qualify for mortgage with a direct lender with no mortgage overlays can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. The Gustan Cho Team at USA Mortgage are direct lenders licensed in multiple states with zero mortgage lender overlays on government and conventional loans.

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