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The Credit Shelf

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The Credit Shelf

The Credit Shelf is a section of HSH.com devoted to credit and related topics. You'll find out how your credit report can affect you; how to find and correct errors in your credit reports; where to get help; how to find lenders for any credit rating; "credit scoring;" and more.

Repairing your credit history is a three-step process:

Check Your Credit History

"I applied for a mortgage and was surprised to be rejected due to a credit report. About 60% of the credit report looks wrong (late payments where a payment was sent on time, etc.). How should I go about rectifying this? Or should I look for another lender?"

Going to other lenders won't help, because all lenders use the major credit reporting agencies. You need to attack the problems at their source -- by getting errors out of your records.

Credit repair is a time-consuming process, but you can do it yourself relatively easily -- and for little or no cost. Don't put it off; erroneous entries on your credit record will eventually affect your ability to get other types of credit.

Get your free credit reports

You have the right to examine your credit records and, if you feel there are mistakes on them, to get them corrected. See Five Credit Report Errors That Will Cost You to learn about the items you may want to correct first.

Federal law also gives you the right to get a free credit report, once per year, from each of the three major credit-reporting agencies. The very helpful website AnnualCreditReport.com will guide you through the process.

You are also entitled to a free copy of your report if you have been denied credit recently. In addition, the Fair Credit Reporting Act also gives you the right to demand that the credit reporting agencies double-check disputed items with your creditors, and correct them.

We recommend that you do not use outfits which claim they can "repair" your credit history for a fee (which can run $500 to $1,000). They often use questionable tactics (such as flooding a credit reporting bureau with letters) which are generally ineffective -- factual information on bad debts stays on your record, period. (In fact, a law from the Federal Trade Commission targets credit repair firms which don't do what they claim. The Credit Repair Organizations Act, which amends the Truth in Lending Act, bars them from taking money up front, mandates that they inform you of your legal rights, and says they must spell out the terms of their contract, which you can cancel within three days.)

Further reading:

Credit Reporting Agencies

The the three major credit reporting agencies are linked here, should you need to contact them individually. However, if you just want the once- per-year offer of free credit reports, you can streamline the process by obtaining them via AnnualCreditReport.com.

When you request a copy of your credit report, you will typically need to provide them with your full name (including middle initial, Jr., Sr., III, etc.), your Social Security number, maiden name (as applicable), and all your addresses for the past five years. Experian (formerly TRW) also needs proof of your current address.


Credit Scoring

"When we applied for a mortgage, the loan officer said we had a good 'credit score.' What does that mean?"

"Credit scoring, simply put, is a mathematical analysis that quantifies your credit history into a single number. ... In general, the score evaluates how many accounts you hold, your repayment histories for certain types of loans or lines of credit, how often you have applied for credit, length of employment and other traits. From there, a numerical score is produced, and this is attached to your credit report."
-- From HSH's legacy publication "How to Shop For Your Mortgage".

For a guideline of what your credit "score" might look like, try our Credit Grade Calculator.

And be sure to read "Differences Between Vantage and FICO Scores," an article written by HSH which explains FICO and Vantage scores -- and what they mean to (and for!) you.

Which credit scores matter for mortgages?

You should know that there are many credit scoring models in use and lots of places that can give you a "free" credit score, but there are certain specific credit scores that matter for mortgages.

Credit scores are required for most mortgage loans purchased or securitized by Fannie Mae and Freddie Mac. The classic FICO credit score is produced from software developed by Fair Isaac Corporation and is available from the three major credit repositories. Currently, both Fannie Mae and Freddie Mac use the following versions of the classic FICO score for both automated and manually underwritten mortgage loans:

  • Equifax Beacon® 5.0;
  • Experian®/Fair Isaac Risk Model V2SM;
  • TransUnion FICO® Risk Score, Classic 04.

Note: In October 2022, Fannie and Freddie's regulator (the Federal Housing Finance Agency) issued guidelines allowing for the use of credit scoring models other than those listed above. Lenders can now also use VantageScore 4.0 and FICO 10T models to help determine a borrower's creditworthiness. Since allowing these changes means underwriting software across the entire mortgage origination spectrum will need to be updated, "FHFA expects that implementation of FICO 10T and VantageScore 4.0 will be a multiyear effort" per the FHFA release.

VantageScore 4.0 and FICO 10T use "trended" credit data, reviewing a borrower's credit management over a period as long as two years. Classic FICO and the other models above employ a more recent "snapshot" arrangement, where just a few recent months of credit activity are used to help determine a borrower's credit score. This means that potential homebuyers who want to get the lowest possible mortgage rates need to better manage their credit over a longer period of time. However, these new "trended credit" models also allow for the inclusion of additional credit sources such as rent, utility and communications accounts (where available) to be included in the borrower's score. According to one estimate, this may allow as many as 72,000 more mortgages to be made, mostly to borrowers who fall outside of the traditional credit spectrum.

Further reading:

Credit Counseling Services

There are services, both low- or no-free and for-pay, which offer to mediate with your creditors and help you to restructure your debt. Your local phone book will be the best place to find one near you.

NFCC logo A similar agency well worth talking to is the National Foundation for Credit Counseling, a non-profit community service which provides consumer credit info, confidential budget and credit counseling, and debt repayment plans. Their Consumer Credit Counseling Service has offices nationwide, and their fees range from free to $15. You can visit their website, or call them at 800-388-CCCS (800-388-2227), for the location of the office nearest you.

Lenders for Imperfect Credit Borrowers

"My husband and I have what we consider good secure jobs. We have held these jobs for many years and make a decent living, but our credit isn't perfect. Is there any place we can go to that we won't be taken advantage of?"

Yes. Although still tricky to find, and mostly available from mortgage bankers and mortgage brokers, loans to borrowers who fall outside of conventional norms are becoming easier to get. These include folks with lower credit scores, those who have irregular or seasonal income streams and more. These "non-QM" and "near prime" mortgages are a growing business for lenders, and if you think your qualifications fall outside of conventional norms, you might contact some of our partners to see if they have offerings to meet your needs -- or shop your local market. FHA will back loans with FICO scores as low as 500 if you can make a 10% down payment (and 580 with a smaller downpayment) but lenders often add "overlays" to these minimum credit requirements.

Be sure to visit the homebuyer and homeowner sections of HSH.com for a wealth of information on credit, mortgages, consumer finance, finding the appropriate regulators and other topics.

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