How Your Credit Score Affects Your Mortgage

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What Is A Credit Score?

Your credit score, which is often referred to as a FICO score, is a number value that “scores” how well you have paid your bills, maintained your credit cards, and paid home, car, and other loans. It ranges from a low of 350 to a high of 850 and is available through three major credit bureaus, Equifax, Experian, and Transunion.

Now if you are just getting a car, the dealer will get a credit report and FICO score from one credit agency and use that one report to decide whether you get a car loan. On the other hand, if you are getting a house, the lender will get a credit report and score from all three major credit bureaus combined. This combined, or merged, report is called a Residential Mortgage Credit Report (RMCR) or a tri-merge report. The report used by the car dealer and the RMCR, or tri-merge, report, even if they were requested on the same day, may be a surprisingly different credit score.

The RMCR shows your

  • Credit scores
  • Opened accounts with balances
  • Payment history
  • Charged off and collection accounts
  • Recent credit inquiries
  • Bankruptcies and tax liens
  • Personal identification information

This credit score is usually more conservative than any credit report you could order through Credit Karma or other free online reports! Remember before you seriously start house hunting to get a tri-merge credit report through a lender.  This is the credit report that determines whether you qualify to buy a home, and it can only be ordered by a lender or a mortgage broker like Carolina Home Mortgage.

Hint: Hesitate before allowing too many lenders to “pull your score,” as this can lower your score!  If you are getting multiple mortgage rate quotes all a lender needs is your middle credit score from a tri-merge credit report, regardless if he pulled your credit or not.

Credit Scores and Interest Rates

Credit scores sometimes get a letter grade in mortgage lingo, as in, “He has a B-rating,” or “She is a low-scoring D borrower.” What does this mean, exactly? The borrower who has an “A-rating” will qualify for the lowest rates and the highest loan amounts. Conversely, a low-scoring borrower can expect to pay a higher interest rate…as much as half a percent. If you want to improve your credit rating, read further.

  • A credit score of 720-850 is A
  • A credit score of 680-720 is B
  • A credit score of 620-680 is C
  • A credit score of 580-620 is D

Ready to take a closer look? Use our Instant Rate Quote calculator to see how the rate changes depending on your credit score.

What Changes My Credit Score?

Your FICO credit score comes from Experian, Equifax, or Transunion who will not disclose exactly how they determine a RMCR or your FICO credit score. Some of the key elements are

  • Number and severity of late payments
  • Type, number, and age of accounts
  • Total debt
  • Public records

Credit scores do not consider the following information

  • Your race, religion, or sex
  • Your age
  • Your occupation or salary
  • Where you live

You Can Improve Your Credit Score

  • Timely. Pay all your bills on time
  • Accurate. Make sure the information in your credit reports is correct (you’ll have to actually get a copy and review it).
  • Reasonable.  Only apply for the credit you need. Too many sources of credit lowers your score.
  • Thrifty. Don’t use too much of the credit available to you.

What About the Free Credit Reports?

There are online services that provide one free credit report for you per year, but you will have to pay extra to get an idea of your credit scores. We recommend the following as there are a lot of “free” credit reports that are just shady advertising gimmicks:

  • Or, if you want to see the stricter RMCR, or tri-merge report, simply fill out your information under our Get Pre-Qualified option, and we will send you a copy of your credit report and score for free.

What If I’m A Low-Scoring Borrower?

Carolina Home Mortgage is a small, independent business. We know that keeping your credit spotless is important AND very challenging. We work with many lenders so you can compare rates and types of mortgages. Some of our lenders work well with low-scoring borrowers. Believe it or not, we have secured loans for clients with scores less than 620 (see below).

If you want to contact us, email info@carolinahomemortgage.com or call. We can give you helpful tips on improving your credit score.

Case Study
We pulled a credit report for Mr. Smith, who had a credit score of 522, which was below the minimum score of 580 he needed with us to buy a home through an FHA loan program. One of our experienced loan officers took the time to go through his credit report with him and told him three specific things he needed to do in order to improve his scores. Mr. Smith took the advice and worked hard for the next six months to improve his credit rating. This December his credit scores had improved to 582, and he was able to buy his first home.

Case Study
Ms. Jones called us up and asked if we could help her. She had filed for Chapter 13 Bankruptcy less than three years ago, and her bank had just told her she could not buy a home. After reviewing her situation, one of our loan officers got Ms. Jones’s loan approved and she was able to buy a home.

Many banks and  lenders have much tougher credit score guidelines than we do. It is our belief that if VA, USDA, FHA or Fannie Mae (all government-owned and -operated agencies) will approve and purchase or insure your loan, then we should not prevent you from owning a home by using stricter guidelines for your credit score.

Why Work With Us?
Carolina Home Mortgage is local and an independent small business. You’ll find our rates are low if you do the comparison. For 15 years we have helped clients become our neighbors. You don’t get to do that unless you offer quality and client-centered service.

Email your questions to
info@carolinahomemortgage.com
or call us. At the end of the day, we report to you, not the bank. We are available after hours and weekends, too!

Helping You Make Carolina Home!