Your top real estate team working the suburbs near St. Paul with buyers, sellers, and investors. Close
Page Summary

Twin Cities Home Buyer Credit Scores Are Demystified

Posted by Christopher Block on Saturday, February 20th, 2016 at 3:36pm.

Credit scores don't have to be this big, mysterious presence that seem to lurk ominously around potential home buyers.

While it's true credit scores will have a heavy bearing on mortgage approvals, as well as qualifying interest rates, this article is designed to provide information that takes the mystery out of credit scores for many Twin Cities home buyers. By providing this information, Team Block believes buyers will be better prepared before they even reach a lender's office, and give them a competitive edge when shopping for a new home.

demystifing credit scores

Let's start with the basics!

What is the definition of a credit score? Every living person who is issued a social security number has a credit record on file. Your social security number provides reporting agencies a unique way to identify a person and key credit files related to you. Based on data contained within those credit reports, an individual is issued a three-digit number; your credit score. And, while a credit score is only one factor the buyer's lender will look at, (as well as their FICO score), when determining if they are a good credit risk for purchasing a home, this tends to be one of the most important, or leading factors. Credit scores are also tied to available interest rates that a buyer can qualify for at time of loan approval. The better the score, the better the interest rates; typically. This means buyers with better scores will usually pay less interest on their mortgage payments.  

Here's a standard break down of how scores are interpreted in the industry:

Do you know what your credit score is? Then, it's time to take a peek for free
 

What are the 3 reporting agencies and why do they show different scores?

There are three credit reporting agencies: Trans Union, Experian and Equifax. Though each credit reporting agency; (also referred to as a credit reporting bureaus), all maintain a credit score on you, it is likely that you will see a slightly different score reported from each. In most cases, if your score is high with one credit reporting agency, it will also be similarly high with the other two. But, here are some reasons why someone might see slightly different scores:

  • Scores were pulled at different times. Even in as little as one week, your credit scores could change.
  • Not all information is being reported to all three credit bureaus. Credit information can come from sources as varied as court records, lenders and collection agencies and not all of them report the same information to each reporting agency.
  • The person used different names to apply for credit, such as your maiden name or a shortened form of your first name. Credit reporting agencies try to match up these records, but sometimes they show inaccurate information.
  • A credit bureau may report information in a different way than the others.
  • The information may be report to the reporting agencies at different times.
Now, before you go and start checking each of the reporting agencies for your individual score, understand that consumers are legally entitled to a free report from each of the main three reporting agencies every year. See below for more details.
 

What is FICO and how is it calculated?

FICO, designed by the Fair Isaac Corporation, is another type of credit scoring mechanism that lenders look closely at when determining if a potential buyer is credit worthy enough for a loan. Generating scores from between 300 and 850; with an excellent credit distinction awarded to those who have scores of 740 or more, the exact mechanism that determines your FICO score is a closely-guarded secret. Fair Isaac did acknowledge that it weighs the scores as follows:

  • payment history - 35 percent
  • amount owed - 30 percent
  • length of history - 15 percent
  • new credit - 10 percent
  • types of credit used - 10 percent

How is a credit score used during the mortgage pre-qualification application?

Your Twin Cities lender does not generally consider your credit score during the pre-qualification process for your mortgage application. Instead, your debt-to-income ratio, (and how it fits into the guidelines set forth by US Bank), is typically the kind of information your lender is most concerned with at that point. Your credit score is used to provide you with qualifying interest rates and terms associated with mortgage options along with final approval. This is set during the time your lender draws up the mortgage papers.

If you're concerned that your credit score will effect your ability to buy a home, then you'll want to talk to our recommended lender first; before you jump too quickly into the arms of a Credit Repair Agency. Many of our Twin Cities homebuyers can fix credit score reporting quickly with a little known-about tool called Rapid Rescore; which our preferred lender using routinely to get homebuyers back on on track and into their new homes quickly and without the costly overhead of credit repair agencies.

Start your free easy pre-qualification application here to learn your options for buying a home in the St. Paul and surrounding Twin Cities communities today:

Get Started with Our Loan Application!

This loan application won't cover everything, but it will help our loan officer with some initial information when they talk to you over the phone.

Talk soon!

Your Contact Information

Please provide a valid email address.

Credit Information

Where can you find a "truly free" credit score?

Every 12 months, you are entitled to a free copy of your credit report from each of the three credit reporting agencies. To get your free copies visit annualcreditreport.com. This is the only website resource expressly authorized by Federal law to provide consumers with free copies of their credit reports each year. You can also call them at 1.877.322.8228 to obtain this information. Regardless of which method you use, you will need to provide information necessary to establish your identity such as your name, social security number, address and date of birth.

Happy House Hunting!

Christopher Block is a full time Realtor & Investor who manages a team of agents at Bridge Realty serving the suburbs of St. Paul, Minnesota. He has been a Realtor since 2010 and is a top 5 producing agent at his company. He is in the top 1% for sales out of all the agents at Bridge Realty, and his team consistently outperforms in closed transactions and customer satisfaction.  

Leave a Comment