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HOW MORTGAGE LENDERS DETERMINE THE QUALIFYING SCORE?
Published on: April 28, 2021

This was developed for Creditors AND lenders to better understand the risks of approving someone’s loan application. The Borrower is then assigned a 3-digit code ranging from 300 to 850. The credit score assigned to a consumer is being calculated based from:

· 35% Payment History
· 30% Credit Utilization
· 25% Credit History
· 10% Credit Mix
· 10% New Credit

Understanding how the credit score is being computed not only by mortgage lenders but also by the other creditors would help us understand if we are eligible for a loan or for applying for a new account. The credit score is categorized by FICO into 5 parts. 300-579 being Very Poor, 580-669 being Fair, 670-739 being Good, 740-799 being Very Good, and last but not the least, 800-850 being Exceptional. With this credit rating, you can determine how you are doing in terms of the 5 factors mentioned above. Having late payments more than 30 days in one or more accounts would severely impact your credit rating.
The majority of the creditors would always look at your credit scores before handing out approval. They base it on the FICO scores more than the scores being assigned by Vantage. With Vantage, they base their credit score computation on these 5 factors:

· 40% Payment History
· 21% Depth of Credit
· 20% Credit Utilization
· 11% Balances
· 5% Recent Credit
· 3% Available Credit

The vantage score range is divided up into 5 parts. 300-499 being Very Poor, 500-600 being Poor, 601-660 being Fair, 661-780 being Good, and 781-850 being Excellent. But the difference between the two credit score models and why the other one is more preferred than the other is that FICO scores review not only the general data but also their reviews are very detailed specific in comparison with the Vantage Scores. With this being said, most lenders do prefer to base their review using the FICO score model.

 

HOW DOES MORTGAGE LENDERS DETERMINE THE QUALIFYING SCORE?

An interview by CNBC Select with Mr. Darrin Q. English, a senior community development loan officer at Quontic Bank, stated that the mortgage lenders will pull all three scores but will only use one of them when making a decision. They will use the median score if the scores differ from each other as a basis for the qualifying score regardless if it is higher or lower. And if you are applying for a mortgage loan with your partner, the bank will pull all three credit scores from each of you and will use the median score from both of your scores and then will use the lowest as the qualifying score.

According to FICO, the lower your scores are, the higher your interest rates are. Listed below is how much interest rate for a 30-year fixed they use depending on your score range:

(As of April 26, 2021)

FICO® scoreAPRMonthly payment
760-8502.644%$1,208
700-7592.866%$1,243
680-6993.043%$1,272
660-6793.257%$1,307
640-6593.687%$1,379
620-6394.233%$1,473

 

HOW TO REVIEW YOUR CREDIT SCORES

 

 

There are many ways to acquire your credit reports, but not everyone shows all the details on your report. You can get them for free from annualcreditreport.com, but that wouldn’t really be very accurate since they only provide yearly updates, so any changes made to your account within the month will not be reflected on it right away. You can call TransUnion, Experian, and Equifax to request one but they do charge for having your credit report sent to you unless you have been denied for credit, then you can get it once for free. There are also different credit monitoring sites including the three bureaus credit monitoring, where you can sign up and track your scores but not all of them provide accurate FICO scores.

We recommend signing up with 3Scores. They provide all three credit scores according to FICO and the important data that’s needed for your credit review and it’s only at $19.95 per month which is cheaper than the others. Aside from monitoring all three scores, 3Scores includes the creditor’s and collectors’ information which is not available on most of the other credit monitoring sites.

 

HOW TO QUALIFY FOR THE MORTGAGE LOAN IF SCORES ARE BELOW RANGE

 

There isn’t an easy and fast way to get approved by mortgage loans, or any other loans if your scores aren’t up to par with their qualifying scores. The best way to deal with this is to review your credit reports once you acquire them from any of the options mentioned above and check for any inaccuracies on your report. You can check out the Credit Jumpstart Guide for more information on how to proceed with reviewing your credit reports.

You can also visit https://www.uptrendcredit.com/uptrender-store/  for letter templates that are proven and tested working efficiently for your DIY credit repair journey.