Credit reports and mortgage loans

Your credit report is very important when it comes to getting a mortgage.  Now more than ever before, your credit score determines your interest rate and what kind of loan you can qualify for.  Until the past few months, if you were able to get an underwriting approval on Desktop Underwriter or Loan Prospector, you usually were able to get the best rates possible even if your score was in the 600's.  Now we are seeing rates changing based on your score and there are more  programs that require specific credit scores.

When you are thinking about buying a house, you need to look at your credit report.  For a valid credit score you need to have at least 3-4 tradelines.  That means that you need 4 open credit accounts, it can be a student loan, a car loan, credit cards, etc.  If you close a lot of accounts, that will lower your score as you have less available credit.  If you open a lot of accounts, it can also lower your score as you now have more credit available without a history of making the payments.

In the last couple of months I have told some clients to make sure they are using their credit cards (and that was hard to do!!).  I have had clients with years of credit history, but only 3-4 open accounts and most of those didn't have a balance.  What we are hearing is that you need to use the card to keep it active.  So use the account, pay it off, but keep the accounts open.  These clients have had credit scores in the 780-820 range, but I had to search the report to make sure it was a valid score.  If they did not have 4 tradelines, some mortgage underwriters would not accept the credit report.  About a year ago, we had a client that had an approval in the spring with a 700+ credit score, in the fall she went to update her pre-approval and her credit score was blank.  She had not used any of her credit cards and didn't have a car loan, so there had been no activity on her report.  In today's market, she would have a very difficult time getting a mortgage.

The other issue that we are hearing about is credit card issuers may lower your available credit on your credit card if you do not use it.  This can lower your credit score as the available credit is very important in scoring.    This also goes along with people consolidating their credit cards into one account and closing their other cards.  When you do that, your available credit is much lower and so it looks worse than having several accounts with smaller balances.

Make sure you look over your credit report so that you know what you have.  You can ask a mortgage loan officer to help you or you can go to a website that will give you a copy for free.  One site is, I know there are also other ones out there.  Make sure there are no mistakes and it is a good idea to check it once a year.  Your credit report can also affect your insurance rates and many employers check it before they hire you.

Leslie Vanderwerf, Advisors Mortgage - Website

Written By

Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

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