Here are some general tips and information to help understand the Credit Reporting process to keep your scores high or to build them.
For mortgage purposes, the industry requires a full Tri-Merge FICO Scoring Report that is pulled by the originating firm through an approved Credit Reporting Agency. The Tri-Merge will show details and credit scores from Equifax, Trans Union and Experian. Every individual has 3 scores – one from each credit bureau. The lender will use the lowest middle score from a view of all borrowers. Example: Borrower 1 has scores of 742, 767, 750. Borrower 2 has scores of 788, 759, 777. The lender will use 750 for pricing and underwriting the loan.
The Fair Issac Corporation is a data analytics company. The FICO scoring model is used across the mortgage industry. The mortgage industry’s FICO model is a more strict and stringent analysis of a variety of factors within a person’s credit history. Your Tri-Merge FICO scores will often be lower than just a standard Consumer Pull of credit that are available to the consumer and generally used in the finance world outside the mortgage industry such as with auto loans, boat loans, your insurance company, etc.
Closing existing accounts or Opening new accounts within 6-12 months of the report being pulled can have a negative impact on your scores. Balances on credit cards that are more than 25% of the limits will have a negative effect as well – even if you pay them off monthly. Inquiries within the last 12 months (other than consumer pulling their own) can have a negative effect. The higher your scores, the better your rate and loan options will be in most cases. The lender can pull another report up to and including the day of closing. Always ask if you need to make any changes to your credit so we can set up the best outcome for you.