#1 – Consumer credit scores are not the same as mortgage credit scores.
Borrowers often share their credit scores with us, as if those scores are set in stone. Those scores, however, are often generated by online “consumer” oriented scoring models that are much less stringent than the scoring models mortgage lenders employ. As a result, the consumer-scores are often much higher than the scores mortgage lenders obtain. This is a problem because credit scores significantly affect interest rates, so it is misleading for us to estimate someone’s interest rate based on their consumer score. I blogged more about this here.
#2 – Credit inquiries = much ado about very little.
Borrowers zealously protecting their credit are often far too concerned about “credit inquiries.” As we remind readers often, borrowers can have unlimited inquiries from multiple mortgage lenders within a 30 day period and the scoring models will treat all of those inquiries as a single inquiry. In addition, inquiries often have only a negligible effect on credit scores that disappears altogether after 90 days – particularly for borrowers with strong credit. I blogged about this here.
#3 – Lenders need to run their own credit reports to pre-approve borrowers.
Borrowers who are concerned about inquiries often ask us if we can pre-approve them without pulling credit. Our answer is “no” because all lenders have to pull their own internal credit reports to provide data for our automated underwriters (“DU” for Fannie Mae and FHA; LP for Freddie Mac). This is an automated process; lenders are unable to simply type in data from a credit report generated by another lender or entity. I blogged about this here.
#4 – Credit scores affect interest rates.
Credit scores can easily impact a borrower’s interest rates by as much as 1%, so it is important to come to the mortgage table with as high of a score as possible. This is also one of many reasons why we can’t simply quote a rate to borrowers without pulling their credit. I blogged about all of the factors that affect a borrower’s interest rate here.
#5 – Credit repair often pays for itself quickly.
Because credit scores affect interest rates so much, credit repair often pays for itself very quickly. It is also cheaper and easier than many borrowers might suspect.
- Option #1: Rapid re-scores. This the most basic of credit repair options. It typically involves the lender running “what if” scenarios to see how paying down balances will improve credit. Borrowers can then provide proof that balances are paid down and obtain a rapid re-score from the major credit bureaus. These re-scores cost a few hundred dollars typically and take from one to two weeks.
- Option #2: Full credit repair. For borrowers with more serious credit issues, particularly if they involve incorrect data and misreporting, we often recommend a credit-repair company. Full credit repair, however, can take several months and cost much more than a rapid re-score, but fees depend on the amount of work required. A repair company that we often recommend is Scorewell, as they have done great work for a large number of our borrowers.
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Founder/Broker | JVM Lending
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