Mortgage Lenders: Credit Score Tips and How to Improve It
What is a FICO Score?
A Fair Isaac (FICO) credit score can be generated for anyone with at least one reported credit tradeline in the past 12 months and is based on data from the three credit bureaus: Equifax, Experian, and TransUnion. All three bureaus generate a separate credit score, each being slightly different due to data variances in the consumer profile.
Payment History (35%): late payments, tax liens, bankruptcies, etc. Accounts Owed (30%): outstanding balances on accounts Length of Credit History (15%): the longer your history, the better New Credit (10%): inquires/applications for new credit accounts Credit Mix (10%): the mix of credit cards, retail accounts, loans, etc.
Tips for Helping Your Borrower Increase Their FICO Score
Check the name, address, SSN, and all public records entries on the report for accuracy
Make sure all the tradelines show up only once and belong to the borrower
Confirm the existing balances, review past payments, and update significant recent payments
Use Credit Assure to automatically see the increased score your client could potentially achieve
Allow negative data to pass important time thresholds (e.g. 6 to 12 months)
Credit Assure™ Automatically scans the credit report and shows you the increased score that your client could potentially achieve
Wayfinder™ Determines the best actions to take so you and your client know how to increase their credit score
What-if Simulator™ Before taking action, easily plug in custom or predefined scenarios to predict how the score would change
What are some positive and negative impacts on a credit score?
Paying bills on time
Low balances compared to maximum credit available
Positive credit management over the past 2 years
Delinquent payments and collections
Opening too many accounts in a short period of time
High total outstanding debt and derogatory public records
How do mortgage lenders use a credit score?
Lenders use credit scores to predict how likely a borrower is to repay a new debt based on past credit behavior. FICO scores are also used to determine the type of mortgage, costs, and interest rates.
Why do scores obtained by the consumer often differ from those on a lender’s credit report?
There are no regulations that state a specific score must be displayed to the consumer, so different entities can choose which score they want to display from the multiple bureau options available to them. On the other hand, lenders are required to pull a specific score for mortgage lending so there’s consistency when making a lending decision.
What causes a “No Score” from one or more of the bureaus?
There could be 3 main causes:
There's not enough information in the borrower’s credit report to calculate a score
The borrower’s file has not been updated by a creditor within the last 6 months
2 out the 3 identifying elements to access the file don't match the bureau’s database