All loans must have a credit report to determine a borrower’s credit history. This report is to determine someone’s credit experience and their willingness to pay their debts. This information tells the lender the risks of giving you a new loan. The mortgage industry has undergone a change in credit reporting that involves not only looking at a borrower’s credit history, but the borrower’s credit score as well. Credit scoring is simply a statistical tool for evaluating a borrower’s likely future performance. This is accomplished by applying variable weights to certain features on a credit report that have value in predicting future behavior. Statistical analysis is applied to those values and used to calculate a risk score.
In today’s mortgage world, most investors require at least one FICO score, but most require three credit score qualifications. Scores are new to traditional mortgage loans, but have been in use since the 1950s in auto financing, the personal finance industry, and credit cards. Risk scores are generic models developed in conjunction with the three major credit repositories: Experian makes the FICO score, Equifax makes Beacon, and TU makes Emperica. The bureaus provide access and delivery of scores to lenders with the actual credit report. As an industry, mortgage lenders refer to this group of credit score codes as the FICO Score. A minimum score of 620 is required for any conventional loan underwritten under FNMA and FHLMC guidelines. Scores below 620 should pay extra points at best or use non-compliant (subprime) inverters. The best mortgage rates and highest loan-to-value values are available only for high credit scores. ( 700 + ) Borrowers in bankruptcy, open collection accounts, late payments, higher than average balances on open accounts, liens, judgments, old collection accounts, or other derogatory credit of any kind should be evaluated and placed with the appropriate investor . A determination must be made at the beginning of the application by obtaining an In-File credit report for a fee of $18.00. In many cases, an In-File will suffice; however, if a full report is required, the cost will be approximately $55.00, which includes a full update on all credit accounts.
If a borrower has a good credit history and a good credit score, they are generally placed in an A-paper (Prime) category. With less than excellent credit or a low credit score, the borrower can fall into categories ranging from A – to B, C and D. Interest rates for categories below “A” are higher and generally require a Larger down payment or more equity in the home. Whenever a borrower’s credit appears bruised, we give them a copy of our Credit Repair Letters to begin the process of cleaning up their credit. This may even be the case with good or excellent credit, as an estimated 96% of credit files have errors. If the credit cannot be repaired immediately, the strategy is to place the client in a Band-Aid-type loan. This helps a borrower get a loan for two or three years while good credit is reestablished. Once cured, we refinance them into an “A” product for a better rate. Just five years ago, these loans weren’t even available. Now we can help people that we couldn’t before. This takes some planning and coordination, but the results are usually phenomenal.
Credit Bureau Risk Score Factor Reason Codes
(The numbers are the codes shown on your report)
The amount due on the accounts is too high ( 01 )
Delinquency level in the accounts ( 02 )
Very few revolving bank accounts (03)
The ratio of loan balances to loan amounts is too high (03)
Too many revolving bank or national accounts (04)
Lack of information on recent installment loans ( 04 )
Too many accounts with balances ( 05 )
Too many consumer finance company accounts ( 06 )
Account payment history is too new to qualify (07)
Too many questions in the last 12 months ( 08 ) (Watch out for this one, it can ruin your score while shopping for a car or mortgage.)
Too many recently opened accounts ( 09 )
The ratio of balances to credit limits is too high in a revolving bank or other revolving accounts (10)
The amount owed on revolving accounts is too high ( 11 )
Revolving account setup time ( 12 )
Time since delinquency too recent or unknown ( 13 )
Account settlement time ( 14 )
Lack of recent bank revolving information ( 15 )
Lack of recent revolving account information ( 16 )
No recent non-mortgage balance information ( 17 )
Number of accounts in arrears ( 18 )
Very few accounts currently paid as agreed (19)
Date of last query too recent ( 19 )
Time lapse since public record or derogatory collection is too short (20)
Amount not due on accounts ( 21 )
Serious delinquency, derogatory public registry or filed collection ( 22 )
Number of revolving bank or national accounts with balances ( 23 )
No recent revolving balances ( 24 )
Establishment time of installment loans (25 )
Number of revolving accounts ( 26 )
Number of revolving bank accounts or other revolving accounts (26)
Number of retail accounts ( 27 )
A few bills currently paid as agreed (27)
Number of established accounts ( 28 )
No recent bank card balances ( 29 )
Date of last consultation to recent ( 29 )
Time since most recent account opening is too short ( 30 )
Very few accounts with recent payment information ( 31 )
Amount owed on delinquent accounts ( 31 )
Lack of recent installment loan application ( 32 )
The ratio of loan balances to loan amounts is too high ( 33 )
Amount owed on delinquent accounts ( 34 )
Overdue payments on accounts ( 36 )
Length of time open installment loans have been established relative to length of consumer history ( 37 )
Serious delinquency and public record or collection filed ( 38 )
Serious delinquency ( 39 )
Public file or derogatory collection filed (40)
No recent retail balances ( 41 )
Time elapsed since the most recent consumer finance company account was established ( 42 )
Lack of recent mortgage loan information ( 43 )
The ratio of balances to loan amounts in mortgage loans is too high (44)
Very few accounts with balance ( 45 )
Number of queries from consumer finance companies ( 47 )
Lack of recent retail account information ( 50 )
Amount owed on retail accounts ( 56 )
Lack of recent auto loan information ( 97 )
Time of constitution of loans from consumer finance companies (98)
Lack of recent auto loan information (98)
Lack of recent information on auto finance loans ( 98 )
Lack of recent information on the account of the consumer finance company ( 99 )