If you plan to apply for a mortgage in the near future, you must know that your credit scores are an important tool that helps your lender decide whether or not to approve your application. Of course, credit scores are not a lender's only consideration. To qualify for a mortgage, the lender will consider a number of factors, including your income, debt-to-income-ratio and the price and appraised value of the home you want to buy.
Credit scores are used by lenders to predict your level of credit risk. VantageScore and FICO are the most commonly used credit score brands.
Still, even if you can qualify for a loan based on every one of the lender’s non-credit factors, your lender may be quick to let you know that unless your middle numeric credit score is up to par, your mortgage application might not be approved. In fact, if your middle score is even one point below the lender's minimum qualification standards, your loan application may be denied or, at the very least, delayed.
Are you unsure what “middle numeric credit score” actually means and why it matters so much? Don’t worry because you aren’t alone. Unless you’ve taken out a mortgage loan in the past, the phrase may be foreign to you.
Three Credit Reports and Hundreds of Credit Scores
There is a lot of confusion when it comes to credit scores in general, largely due to prevalence of so many myths and misinformation on the topic. However, some confusion also stems from the fact that credit scoring is rather complicated. For example, did you know that you actually have hundreds of credit scores rather than just “a” score?
Before you start to feel panicky at the prospect of trying to track hundreds of different credit scores, don’t. Instead, it is best to focus on the information upon which every single one of your credit scores is based: your three credit reports.
Most people have three credit reports, one from each of the three major credit reporting agencies, Equifax, TransUnion and Experian. These credit reports typically contain information about your current accounts, your old accounts, how often you have applied for new credit in the past two years and a whole lot more.
Credit scores are actually a separate, add-on product that lenders may opt to purchase along with your credit reports. Credit scores are used by lenders to predict your level of credit risk. VantageScore and FICO are the most commonly used credit score brands. Each of their credit scores are designed to predict the likelihood that you will become at least 90 days past due on any account within the next 24 months.
Finding the Middle Numeric Score
Most lenders will pull a single credit report and a single credit score when you apply for non-mortgage financing. Mortgage lenders, however, are required to pull all three of your credit reports and a FICO credit score on each of them. All of that information is compiled into what is known as a Residential Mortgage Credit Report (RMCR), or a "tri-merge" report, which is much easier for your lender to read and review.
Your RMCR typically lists three of your credit scores and all of your credit report information. And because credit scores range from 300 on the low end to 850 on the top end, your scores are going to fall somewhere within those two boundaries. Mortgage underwriting is based on the middle of those three scores. So, if your scores are 700, 725 and 750, your lender will base his or her decision on your 725. And, if you have a co-applicant whose scores are 600, 625 and 650, your lender will take into consideration his or her 625 along with your 725. That’s why your middle numeric score is so important.