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Which Credit Score Do Mortgage Lenders Use

Can You Get A Mortgage If You Have Bad Credit

What Credit Score Do Mortgage Lenders Use?

Yes, its possible, but youll need a specialist broker to find you the best possible deal because otherwise you might have to pay higher interest rates or put down a bigger deposit. There are mortgages specifically designed for you if you have a poor credit rating. Our platform uses a clever algorithm to match you to the perfect bad credit mortgage broker for your unique situation. Someone whos up for the challenge, and has a proven track record of making bad credit mortgages.

Why Lenders Pull Credit Again

There is often a long lapse of time between when you apply for a mortgage and when you actually close. If it is a purchase, you could be looking at as long as six months before you close. That is a long time to let your credit go unchecked. What if you racked up your credit card bills when you purchased furniture for the home? What if your car broke down and was unfixable and you had to purchase a new car? These things might not make you unable to afford the mortgage, but they definitely affect your debt ratio. If your ratio is beyond the recommended guidelines for the loan program, the lender has to pull their approval. If they dont, they could be on the hook with the overseeing agency, such as Fannie Mae or Freddie Mac. Lenders are held responsible with the new regulations, such as the Dodd-Frank Act and the Ability-to-Repay Rule.

When It Comes To Getting A Mortgage There Are Enough Numbers Flying Around To Make Any Mathematician Happy Lenders Will Look At A Number Of Items Which Can Include Your Credit History Your Income And How Much Debt You Have Among Other Things

But one number is perhaps one of the most important numbers of all. Your FICO® scores can impact whether you get a loan or not, and if so, at what interest rate. Thats why its important to understand the nuances of your FICO® scores. Luckily, its not rocket science. Heres the scoop on how your FICO® scores can affect your mortgage.

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What Are Credit Reference Agencies Do Lenders Look At

UK mortgage lenders tend to use three credit reference agencies Experian, Equifax and TransUnion, although there are many others that are referred to by lenders across the UK.

If youve ever checked your credit score before, you may already know that each of these agencies and the many others that provide information about your credit history, use different scoring systems.

This can be frustrating because one lender may refer to Experian and use their scoring system whereas another may use data from Transunion.

Why Is It So Important To Get A Low Interest Rate On My Mortgage

What Credit Score Do Mortgage Lenders Use ...

You probably already know that a lower interest rate means a smaller monthly payment. But do you know just how big of an effect a smaller monthly payment can have?

Lets look at an example. According to the U.S. Census Bureau, in March 2018 the average sales price of a new home sold in the United States was $366,000. If you were to go to the closing table with a 20% down payment and opted for a 30-year fixed-rate mortgage, heres how much it would cost you over time depending on your interest rates.

$3,408 $102,183

In this example, boosting your credit before you get a mortgage could save you $284 per month, $3,408 per year, and $102,183 over the life of your loan! What would you do with all of that extra cash?

Pro tip: Use our to learn more about what could impact your credit scores.

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How Does Credit Score Determine Loan Type

Conventional loans require that you have a higher credit score, while Federal Housing Administration loans are a bit more forgiving when it comes to your score.

With an excellent credit score, you can expect to pay less for your loan because your interest rate will be lower.

Not only will a poor score affect your ability to get a loan, but if you do qualify for one, you could be paying thousands of dollars extra over the life of your loan due to a higher interest rate.

It Can Affect Your Finances

Financial institutions look at your credit report and credit score to decide if they will lend you money. They also use them to determine how much interest they will charge you to borrow money.

If you have no credit history or a poor credit history, it could be harder for you to get a credit card, loan or mortgage. It could even affect your ability to rent a house or apartment or get hired for a job.

If you have good credit history, you may be able to get a lower interest rate on loans. This can save you a lot of money over time.

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Financial Information In Your Credit Report

Your credit report may contain:

  • non-sufficient funds payments, or bad cheques
  • chequing and savings accounts closed for cause due to money owing or fraud committed
  • bankruptcy or a court decision against you that relates to credit
  • debts sent to collection agencies
  • inquiries from lenders and others who have requested your credit report in the past three years
  • registered items, such as a car lien, that allows the lender to seize it if you don’t pay
  • remarks including consumer statements, fraud alerts and identity verification alerts

Your credit report contains factual information about your credit cards and loans, such as:

  • when you opened your account
  • how much you owe
  • if your debt has been transferred to a collection agency
  • if you go over your credit limit
  • personal information that is available in public records, such as a bankruptcy

Your credit report can also include chequing and savings accounts that are closed for cause. These include accounts closed due to money owing or fraud committed by the account holder.

Do You Qualify For A Mortgage

How Lenders Use Credit Score

You can check your own credit score online, and talk with a lender to see whether you qualify for a mortgage based on your current score.

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How Do Lenders Use Credit Scores

Mortgage lenders mainly use credit scores to evaluate whether you will be able to repay your mortgage loan.

They often will order your full credit report, which contains various scores based on the types of credit you have.

Lenders evaluate your credit score to determine which loans you can get, and the interest rates you will pay. If you have a low score, it could mean anything from paying more for a loan to not qualifying for one altogether.

When refinancing, your credit score is used in a similar way to determine the rates and terms of your new mortgage and whether you are able to refinance at all.

Thats why its important to keep your credit score in check and work closely with your lender to determine the best time to refinance.

It Could Change Your Interest Rate

Even if you did not overextend your credit between the time you applied for the loan and the closing date, you may still be affected when the lender pulls your credit. If there is a significant disparity between your original credit score and the score they receive prior to closing, the lender may have to readjust. Your credit score determines the interest rate you receive. Its called a loan-level pricing adjustment. For every credit score category, the lender must adjust the interest rate. If your credit score dropped to a lower category because you had a late payment during the time you waited to close on your home or you closed an account without realizing the implications, it could affect your interest rate. It is in your best interest to keep your credit as consistent as possible during this time. Make sure you make your payments on time, dont increase any of your outstanding credit, and dont close any accounts. Once you close on your mortgage, you are free to do what you want with your credit, but until then, keep things as consistent as possible.

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Lenders Might Use Only One Score In Some Cases

We use all three bureaus scores Experian, Equifax and TransUnion, said Christopher M. Petersen, president and CEO of CP Financial & CP Realty.

There are some caveats associated with certain programs.

For instance, on some home equity lines of credit we use only one bureaus score, but for the vast majority we utilize all three, Petersen said.

And in some rare cases, a borrower may have only two scores, in which case he would use the lower score.

In the past, there were programs that would utilize the average of the top two scores, but that is rarely used now, Petersen said.

See related: How many credit cards do you need to get a mortgage?

How A Credit Score Is Calculated

What Credit Score Do Mortgage Lenders Use ...

Its impossible to know exactly how much your credit score will change based on the actions you take. Credit bureaus and lenders dont share the actual formulas they use to calculate credit scores.

Factors that may affect your credit score include:

  • how long youve had credit
  • how long each credit has been in your report
  • if you carry a balance on your credit cards
  • if you regularly miss payments
  • the amount of your outstanding debts
  • being close to, at or above your credit limit
  • the number of recent credit applications
  • the type of credit youre using
  • if your debts have been sent to a collection agency
  • any record of insolvency or bankruptcy

Lenders set their own guidelines on the minimum credit score you need for them to lend you money.

If you have a good credit score, you may be able to negotiate lower interest rates. However, when you order your credit score, it may be different from the score produced for a lender. This is because a lender may give more weight to certain information when calculating your credit score.

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How To Strengthen Your Credit Score To Buy A House

If your score doesnt qualify for a great rate or the type of mortgage you’d prefer, it might make sense to put off homebuying for a while and use the time to build your credit profile. Heres how:

  • Pay all bills on time: Payment history is the biggest of all the factors that affect your credit score.

  • Maintain low credit card balances: Experts recommend you use no more than 30% of the limit on any credit card, and much lower is much better. How much of your available credit you are using is called your, and its the second-biggest factor in your score.

  • Check your credit reports: Look for score-lowering errors. If you find something, dispute it. Through April 2022, you are entitled to at least one free credit report from each of the three credit bureaus, Experian, Equifax and TransUnion, every week.

  • Keep credit cards open: Closing a card reduces the amount of available credit you have, which can send your credit utilization up and ding your score. Make a charge occasionally and pay it off promptly that keeps the issuer from closing your account for inactivity.

  • Look at your credit mix: If you have only credit cards or only installment loans, consider adding the other type so you can demonstrate a good payment record across diverse credit lines. If youre trying to build up a thin credit file, you could consider a secured credit card or a credit-builder loan.

How Do You Choose Which Credit Score To Use

During pre-approval, we typically use the Experian FICO-II credit score from Experian. This is a soft credit check and won’t affect your credit score. If you apply with a co-borrower, we use the lower of your two scores.

When you want to continue with your loan application, with your authorization we pull your credit scores from all three major credit bureaus and use the median of the three scores received.

Related questions

Home lending products offered by Better Mortgage Corporation. Better Mortgage Corporation is a direct lender. NMLS #330511. 3 World Trade Center, 175 Greenwich Street, 59th Floor, New York, NY 10007. Loans made or arranged pursuant to a California Finance Lenders Law License. Not available in all states. Equal Housing Lender.NMLS Consumer Access

Better Real Estate, LLC dba BRE, Better Home Services, BRE Services, LLC and Better Real Estate is a licensed real estate brokerage and maintains its corporate headquarters at 3 World Trade Center, 175 Greenwich Street, 59th Floor, New York, NY 10007. A full listing of Better Real Estate, LLCs license numbers may be foundhere. Equal Housing Opportunity. All rights reserved.

Better Settlement Services, LLC. 3 World Trade Center, 175 Greenwich Street, 59th Floor, New York, NY 10007

Homeowners insurance policies are offered through Better Cover, LLC, a Pennsylvania Resident Producer Agency. License #881593. 3 World Trade Center, 175 Greenwich Street, 59th Floor, New York, NY 10007

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What Information Do Credit Reference Agencies Have

  • The Electoral Roll. This shows how long you’ve been registered to vote at your given address

  • Public records. This shows any county court judgments, bankruptcies, IVAs, Debt Relief Orders and Administration Orders.

  • Account information. This shows the financial status of your existing accounts, how much you’ve borrowed and whether or not you’ve paid on time

  • Home repossessions. This shows if you’ve information This is information from members of the Council of Mortgage Lenders about homes that have been repossessed

  • Associated financial partners. This shows all of the people who you are financially connected to. For example, you could have a joint bank account

  • Previous searches. This shows companies and organisations who you have looked at in the last 12 months. For example, if you made an application for credit in the last 12 months, it would show here.

Lenders Want To Minimize Default


Aside from the Big Brothers watching the lenders, no bank wants to put themselves at risk for default. If you were to increase your debt load, it depletes your monthly resources. You might get in over your head, so to speak. What looks okay on paper might be more difficult to afford than you originally thought. After a few months of balancing the new mortgage payment along with your other monthly debts, you might find it too difficult to own a home. Because you just purchased it, your equity might not be very high, depending on how much money you put down. This could put you at great risk for letting the home go into foreclosure. This is what lenders try to minimize by pulling your credit again at the last minute.

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Can I Get A Mortgage With A Fair Credit Score

Yes! You can get a mortgage with a fair credit rating. Generally, mortgage lenders like you to have a high credit rating, but they all have different lending criteria. If youre thinking of getting a mortgage and want a clear view of how mortgage lenders will see you, the best thing to do is create an account with checkmyfile. Checkmyfile shows you data from four of the major UK credit reference agencies Experian, Equifax, TransUnion and Crediva.

When you apply for a mortgage, a mortgage lender will do a thorough check on you and be able to see your credit history. Checkmyfile lets you see what they will see, so youll know exactly how your credit appears and what kind of score you have. Once you have a clear view of your credit history and how each of the major credit reference agencies have rated you, youll know how likely most lenders will be to offer you a mortgage.

Read more about checkmyfile in our Guide: Checkmyfile Explained.

Can I Get A Home Loan With A 450 Credit Score

A credit score of 450 is categorised differently depending on the credit checking agency youre using. For example, a credit score of 450 on Experian or TransUnion is categorised as Very Poor, which means youll have less options available to you when you apply for a mortgage than you would if you had an Excellent rating. But, there are specialist mortgage lenders who will consider your application. You just need a specialist broker. We can help with that. Get in touch and get matched to the perfect mortgage broker for you now.

If your credit score is 420 and youre with Equifax, youre categorized as having an Excellent rating, so shouldnt struggle to get a mortgage from most lenders.

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