Credit Scoring

The three credit repositories, Experian (TRW), Transunion, and Equifax, provide credit scores for credit reports. These repositories are Regional, as follows:

The most talked about score is the FICO, or Fair Isaac Company, score which is used by TRW. These credit scores were intended for consumer credit evaluation and have been unfairly adopted by the buyers of mortgage loans. The credit scores range from a high of 850 to a low of no score and are based on extension, use and abuse of credit. Most lenders require a credit report with at least 2 merged bureaus, if not all three, merged into one. With the two bureau merged report, the score used is the lower of the two scores for the primary wage earner. The 3 bureau merged report uses the middle of the three scores for the primary wage earner.

The low interest rates advertised in the media require a credit score of usually 680 or above, using the lower of two bureaus or the middle of the three. If two married borrowers are applying and their income is close to equal, lenders will look at the scores of both borrowers and use the lower qualifying score. Exceptions are sometimes made on scores down to about 650. Credit scores below 650 usually require higher interest rates and larger down payments. About the only program that allows for lower credit scores at the low advertised rates are government sponsored loans, such as FHA and VA loans.

If two or more non-married borrowers are applying for a loan, lenders will use the worst credit of all borrowers to qualify. Good credit does not offset bad credit.

THE BOTTOM LINE: If the person with the best credit can qualify independent of another borrower with worse credit, get the loan in the qualifying person's name only and add the other person after the loan closes.

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