General Requirements for Credit Scores
Credit Score Versions
When you want to buy a home and need a loan, the company lending you the money will check your credit score. A credit score is a number that tells lenders how likely you are to pay back a loan on time. The scores they use are called FICO scores, which are calculated using software from a company called Fair Isaac Corporation. There are three big companies that keep track of people’s credit, and each one has its own version of the FICO score. For your loan, the lender will look at:
– Equifax Beacon® 5.0;
– Experian®/Fair Isaac Risk Model V2SM; and
– TransUnion FICO® Risk Score, Classic 04.
Your lender will get these scores from all three companies to understand your credit history better. If your credit report is accurate and complete, the lender won’t need to dig deeper into your financial background.
Sometimes, a credit score can’t be given because there’s not enough credit history. When this happens, it’s noted in your credit report, which the lender keeps on file.
Minimum Credit Score Requirements
The lowest credit score you can have to be eligible for a loan depends on several things: whether your loan is manually processed or processed by a system called Desktop Underwriter (DU), the type of loan, and other details about your financial situation. Here’s how it works:
– For manually processed loans, the minimum credit score is between 620 and 640, depending on various factors listed in a document called the Eligibility Matrix.
– For DU processed loans, the system decides if your credit score meets the requirements.
– If you’re getting a loan backed by the government (like FHA or VA loans), you need at least a 620 credit score.
– If your loan agreement allows for something different (a variance), you might need a higher score.
To figure out which credit score is used, if there’s just one borrower, it’s straightforward—use their score. If there are multiple borrowers, either the average or middle score is used, depending on the specifics.
Exceptions to the Minimum Credit Score Requirement
There are a few situations where the minimum credit score rule doesn’t apply. For example:
– If no borrower has a credit score.
– Certain manually processed loans through a program called HomeReady.
– High loan-to-value refinance loans, except when an alternative qualification path is used.
DU Credit Score Requirements
DU, the system that helps in processing loans, doesn’t focus much on credit scores because it does its own review of your credit report. However, lenders are still required to check your credit scores from all three major companies. If one or two of these companies don’t have any information on you, your credit report can still be used as long as there’s at least one score from the remaining company(s).
A special note: If DU processes a loan for someone and finds only medical information on their credit report, the loan cannot go through DU. Instead, it must be manually processed according to specific guidelines.
Frozen Credit Requirements
If your credit information is frozen at one of the credit reporting companies, you can still qualify for a loan under certain conditions. If two companies have your credit data and at least one gives a score, your report is acceptable. However, if your credit is frozen at two or more companies, you won’t be eligible for a loan.
Delivery of Credit Scores
When your loan is finalized, the lender must submit your credit score information. This includes the score for each borrower and an overall score for the loan. Sometimes, the score used to check if you’re eligible for the loan might be different from the one submitted at the end.
Loan-Level Price Adjustments Based on Credit Score
Your credit score can affect the cost of your loan. This is called a loan-level price adjustment (LLPA). The LLPA depends on your score and other factors related to your loan. Even if borrowers don’t have a credit score, there might still be LLPAs based on other aspects of the loan.
References
For more details, visit General Requirements for Credit Scores of the Fannie Mae Selling Guide.