One of the most important items that lenders have always considered when qualifying a potential buyer for a mortgage is creditworthiness. The definition of “creditworthy” has narrowed over the past few years and it’s usually the first thing I check when qualifying a buyer.
For many years in the mortgage industry, your credit score was not the first or only thing we looked at to determine your ability to repay your debts. Sometimes individuals with little or no credit could document their creditworthiness with rental, utility, daycare/tuition, or insurance payment history, among other things. These were considered non-traditional, but valuable, types of credit. However over the past few years, lenders have come to rely more heavily on traditional credit to qualify buyers for mortgages. Traditional credit includes items reported on your credit report like credit card, student loan, mortgage and auto payment histories.
The three credit agencies, Equifax, TransUnion and Experian, report traditional types of credit and give you a score based on your payment history. Mortgage companies then use this information to determine how much risk you pose and sometimes to match you with the right mortgage loan product.
Most loan programs and banks will require a minimum 640 credit score from 2 of the 3 credit agencies, although there are sometimes options for credit scores under 640 as well. A good loan officer will pull and review your credit, even if you don’t plan to buy for several months, to evaluate the credit and advise a buyer how to be in the best position for loan approval when the time is right for them.
This guest post was provided by Jennifer Orner at Prime Lending.