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Common Credit Score Questions When Getting A Mortgage In 2021

While some radio commercials lead borrowers to believe that “your job is your credit,” when it comes to a mortgage, the borrower’s credit score can be the make or break factor in qualifying for the loan. It can also dramatically affect the interest rate, as well as, the variety of mortgage programs that are available to a borrower. So it makes sense that this is a common topic where borrowers need info.

Here are some of the most frequently asked questions about credit scores that we’ve heard:

Whose credit score is used when buying a home with a spouse?

Lenders will use the lowest mid credit score of all borrowers. The “mid credit score” is the middle score returned by the three credit score bureaus: Equifax, Experian and TransUnion.

Can paying off loans temporarily decrease my credit score?

There are a lot of other factors that contribute to your credit score, but paying off loans should not materially lower your FICO score long term. However, there can be a temporary dip in your FICO score.

Will my spouse not having any credit history affect us qualifying for a mortgage?

Many loans don’t require a minimum number of credit lines (aka “tradelines”). Your mortgage broker should tell you if the loan you are considering does have a tradeline requirement. Even if there is a requirement, there are many ways to quickly build tradelines depending on when you’re planning to secure financing. For example: your spouse can apply for a couple of credit cards or you can also add them as an authorized user to some of your accounts, which might help improve their credit profile as well.

If my relative was originally on my mortgage, how can I put my name on it so I can begin building good credit?

If you want to take your relative off of the mortgage, you would just need to refinance. Provided your credit and income qualifies, it should be a straightforward process for you to remain on.

What is considered “bad credit?”

The consumer reporting agency Experian considers a low credit score as 600 or below. Many traditional lenders view this level of credit score as too risky and so will only offer these potential buyers high-interest loan options with larger down payments.

How can I repair a bad credit score?

1. Request copies of your credit report from the major reporting agencies – Experian, TransUnion, and Equifax. Each agency provides consumers with one free copy per year.
2. Dispute any potential errors on your credit report.
3. Pay all existing bills on time to avoid incurring delinquency reports.
4. Create a detailed monthly budget and work toward paying off any debts you might owe.
5. Reduce or eliminate credit card use or other borrowing activity that creates more debt. But don’t close out your credit card accounts – that will negatively impact your credit score. Lenders like to see the history of your credit use.

How does a credit-monitoring tool help repair bad credit?

Credit-monitoring services watch for any activity on your credit in real-time and will promptly alert you of any use. This will enable you to prevent identity theft or other fraud on your credit. Additionally, this kind of conscious awareness will help you see how your actions positively or negatively impact your credit score – helping you repair your credit.

How can I dispute a credit score or credit report error?

The Fair Credit Reporting Act gives you free access to your credit report and the ability to formally dispute any potential inaccuracies.
1. Go to the Experian, TransUnion, or Equifax websites and follow the prompts to submit an investigation request, or
2. Go to the FTC website and create a detailed dispute letter using their template. If you send this letter through the mail, make sure you send it via certified mail so there is a paper trail.
3. The reporting agency contacts the creditor, notifies them of the dispute, and requests verification.
4. After the reporting agency receives a response from the creditor they will revise your credit report and send you a detailed summary of the investigation.
5. If your request was denied, they might ask for additional documentation and a written statement.
6. If left unresolved, an escalation of the dispute to the Consumer Financial Protection Bureau (CFPB) occurs. The CFPB serves as an intermediary and typically responds with its findings in 15 days.

How will debt consolidation or a personal loan help me repair my bad credit score?

The biggest benefits of a debt consolidation loan are simplified finances. Having only one lender and one monthly bill to worry about could help you pay off your debt more consistently and avoid missed payments.
If you’re using a debt consolidation loan to pay off revolving debt from credit cards or lines of credit, it will aid in credit repair. One thing to note is qualifying for a debt consolidation loan can cause a temporary dip in your credit score as the lender needs to perform a hard inquiry on credit.
It’s really important that you consider the effect your credit score will have on your home buying journey.

 


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The Turnkey Foundation, Inc. d/b/a Arbor Financial Group is an Equal Housing Lender. In all jurisdictions, the principal {NMLS: 236669} licensed location is 2932 Daimler Street, Santa Ana, CA, 92705. {Julie Aragon MLO #250691}