This guide will give you an overview of mortgage credit scores and how to improve them
Individuals are usually aware of their general credit scores. They monitor it and maintain good scores to ensure that they qualify for loans and other services.
However, only a few individuals know about mortgage credit scores.
They will only be aware of its existence when they try to apply for a home loan.
During this time, most individuals would be surprised that mortgage credit scores exist and how the value of this can be very different from their general credit scores.
This guide will inform you about mortgage credit scores and how you can improve their value.
Mortgage Credit Score
Individuals have different credit scores, such as general credit, mortgage, auto loan, and credit card.
The value for each of these can greatly vary from one another because they have different purposes.
The mortgage credit score is one of the very important ones because it helps identify if individuals can be granted a home loan.
The value of the mortgage credit score is usually lower than the general credit score.
Therefore, individuals should pay close attention to this to ensure that they qualify for the home loan that they want to take.
Mortgage Credit Score Formula
Freddie Mac and Fannie Mae buy most of the mortgages in the United States. During the loan process, they mandate that the old FICO formula be used to underwrite the loan.
Because of this, the formula for calculating the mortgage credit score has not been updated for more than 20 years.
Though there are efforts to update it, the process has not been fully completed.
Since it has been a long since the formula has been updated, the mortgage credit score value is usually lower than other credit scores that now use new formulas.
The old formula for mortgage credit score calculation still considers medical debt and debt collections. These values are usually no longer considered in the new formulas for other credit scores.
The old formula does not allow consumers to add values to improve their mortgage credit score value, such as utilities and rent payments.
While the Federal Housing Finance Administration (FHFA) has announced that it would look into improving the credit score formula, it could still take years before the change will be fully implemented.
Knowing Mortgage Credit Score Value
Since the process and formula updates are still being reviewed, consumers can take other actions to improve their mortgage credit score. One of these is being aware of your actual mortgage credit score value.
Individuals can go to the FICO website to check for their mortgage score. The website will allow individuals to view 28 FICO scores and regular updates for a fee of $19.95 per month.
Aside from this, consumers can also check their mortgage credit score by doing a mortgage preapproval with a lender.
The lender can do an informal mortgage credit score for the consumer.
The National Foundation for Credit Counseling (NFCC) also advises consumers to check their credit score with a housing counselor.
NFCC senior vice president of communications, Bruce McClary, states that the Department of Housing and Urban Development (HUD) has housing counselors that can help check an individual’s mortgage credit score. The list of counselors can be found on HUD’s website.
Improving Mortgage Credit Score
Though increasing the mortgage credit score can take time, it is still doable and can be increased like other credit score values.
The following can be done to help raise the mortgage credit score value:
- Avoid taking credits
- Ensure that bills are paid on time
- Consult with HUD housing counselors
- Join programs that can help improve mortgage credit score
Consumers are also advised to regularly review their mortgage credit scores, which will help them keep track of the value improvement and check what actions they would need to take to increase it further.
Under the law, consumers can claim one free credit report each year from different credit bureaus.
Individuals can get regular updates by timing their credit requests properly every four months.
Consumers can also get weekly credit report updates because of the coronavirus pandemic. The updates are available until April 20, 2022.
Individuals are also advised to group all their loan inquiries. This is because the time frame for mortgage shopping is only 14 days.
Editor’s Note on Mortgage Credit Score:
This article is published to give you an overview of mortgage credit scores.
What are your thoughts on this piece? Do you know your mortgage credit score?
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