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Can I Qualify with poor credit?

A few words about credit scoring

Before we talk about how your credit score affects your ability to qualify for a mortgage, let's make sure we're on the same page about how credit scoring works.

A credit report is a history of your credit activities compiled by the three credit bureaus, Equifax, Experian, and Trans Union. It lists your credit accounts, such as mortgages, auto and student loans, and credit cards, their balances and payment requirements. If you fail to pay your bills, it can show actions taken against you. It also lists those who recently requested a copy of your credit report (called inquiries).

It's also important to know what doesn't appear on your report. It doesn't show your income or bank balances. It doesn't contain any personal information other than your name, current and previous addresses, Social Security number, date of birth, and current and previous employers. That means it contains no information about your race, medical history, personal lifestyle, or criminal record. Finally, the report only shows information that was reported to the credit bureaus. Thus, it typically doesn't show your rent or utility accounts, unless you fail to make your payments.

Your credit score is a statistical calculation designed to reflect your likelihood to repay your debts. The credit bureaus use scoring models developed by the Fair Isaacs Corp., from which we get the FICO score. FICO scores range from 300 to 850.

Fair Isaacs hasn't revealed the exact formula used to compute the score, but it has identified the factors that affect your score and the relative weights of those factors.

  • 35%: Whether you pay your bills on time
  • 30%: How much of your available credit you are using ("credit utilization")
  • 15%: Age of your credit accounts
  • 10%: Types of credit used
  • 10%: Recent credit inquiries

A word of caution about credit scores: you can get your credit score from many sources, but it's unlikely to be a mortgage FICO score. Many customers have complained to me that the scores they see are higher than the scores we use, which leads them to believe they will qualify for a mortgage or a better interest rate.