Credit score not lone factor when seeking a mortgage
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By Scott Sheldon  May 30, 2014 12:00 am

The credit and financial choices you make today shape your future chances of procuring credit. If you have a tarnished credit history, while you still may be able to qualify, it will be a document-heavy process.

Here are some little lending nuances that may arise if you have credit inconsistencies…

• Your credit history matters: The importance of credit is especially crucial when applying for a mortgage because it is the largest form of credit a consumer can obtain. Be prepared to prove yourself worthy. The credit history is especially important because the history not only supports the credit score, but also provides further insight as to what the consumer behavior has been with regard to having, using and maintaining obligations.

For example, a pattern of derogatory credit items will open up questions and lender scrutiny. 

The credit history provides additional modeling of the possibility that a consumer with a blotchy payment history might be predisposed to not make a mortgage payment on time, resulting in default.


• Credit scores 620-659: An unsatisfactory payment history would support a lower credit score, possibly resulting in a score less than 660. Conversely, a higher credit score would be supported by a more satisfactory payment history such as paid on time or paid as agreed.


What a lower score 

means when getting loan

Borrowers with credit scores between 620-659 will have credit explanations to provide regarding their credit history and/or any possible collection accounts, charged-off accounts or delinquencies that might otherwise arise in this type of credit capacity.

To score in the 620-659 range, it is usually a combination of multiple factors, such as high credit card balances, late payments, closed credit cards, a charge-off account or collections with old balances or little credit as whole.


Loan can be more pricey

Any score within 620-659 will bear a pricing adjustment on a conventional fixed-rate loan even pricier with little equity such as less than 10 percent down. It would not be unreasonable for a borrower to pay as much as .375 percent higher in rate in these circumstances.


Not passing 

auto underwriting

All mortgage lenders selling loans to Fannie Mae and Freddie Mac use what’s called automated underwriting on each loan application. Fannie Mae’s automated underwriting engine is Desktop Underwriter and Freddie Mac’s automated underwriting engine is Loan Prospector.

Upon submitting an application for a mortgage, the lender will run an automated underwriting system analysis on your credit, debt, income and assets. Effectively, automated underwriting (AUS) is an algorithm that comprehensively reviews the total financial picture a borrower represents for delivery to either Fannie Mae or Freddie Mac. If automated underwriting results show anything other than “approve eligible” or “accept,” you may not qualify without making some kind of change.

Changes include increasing the down payment, showing more savings in the bank, procuring a co-signer, changing loan program, or loan term and cleaning up your credit history.


Lending credit cleanup tips

• Pay down credit card balances to 30 percent of the total allowable line on all credit cards. For example, if you have a credit card with credit line of $1,000, don’t carry a balance exceeding $300.


• If possible, pay off each credit card in full but do not close the credit card account. Closing credit cards can create a negative credit rating which results in a lower credit score, resulting in a pricier loan.


• Prior to applying for the mortgage, old collection accounts with balances can be settled so long as when doing so the account is removed from the credit report entirely, as though the account was never there. Negotiating a settlement with a creditor after applying for the mortgage is different and means the borrower would have to zero out the account if the old credit account has a balance exceeding $2,000.

If you plan to be getting a mortgage and know you have some credit challenges, making changes to bolster your financial picture at the advice of a qualified loan professional would be a wise decision.


Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at

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