By JEFF LAZERSON / CONTRIBUTING COLUMNIST
Here we are in 2017, and we are still in the credit evaluation stone age.
Regardless of your ability to repay your home loan, one point on a FICO score can still mean the difference between loan approval and loan denial.
Mortgage originators are required to include your FICO scores in their “residential mortgage” credit reports.
Lenders will order their own residential mortgage credit report, even if you already have Vantage Scores, scores on a consumer website or scores on a credit card statement. I call those “happy scores” because they are often higher than lenders’ FICO scores.
Talk about a rigged system. No matter what, your FICO scores go down when you shop for a home loan. You effectively get punished for your due diligence. That lower score (after the lenders’ credit inquiry was factored in) can also cost you from 0.25 to 0.75 of a percent in fees.
The best known credit score developers say a lender’s inquiry can lower your credit score by five to 10 points, said Kelsey Audagnotti, Experian spokesperson. But those decreases typically disappear after a month or two, so the impact is minimal.
Shop till you drop, but do it quickly.
All inquiries within a 14- to 45-day period will count as one inquiry, according to credit bureaus.
Since all three bureaus provide different estimates, be conservative. Do all of your shopping within 14 days.
Conventional underwriting requires a credit decision and subsequent pricing for a loan to be based upon an applicant’s lowest middle FICO score.
Fannie and Freddie use a pricing matrix that is primarily based upon your percentage of down payment or equity and your credit score in ranges. So, 740 or higher is the top tier. Then, it goes 720-739. Then, 700-719 and all the way down to a 620-639 bottom range.
You may want to have a new year’s resolution of getting or keeping your credit scores at 760 or higher just to be safe.
Jeff Lazerson - Mortgage Columnist since 2011