So you are looking to buy a home with another person, but aren't sure whose credit score is used for the mortgage.
This is an important question during the financing process, especially if one person has a significantly lower score than the other. This blog shows how lenders calculate the credit score that will be used on the loan.
*Disclaimer: I am NOT a credit repair specialist or a local mortgage lender. These are tips that I have learned while working with my buyer clients.
The hard credit check...
When buying a home, lenders will have to pull a "hard" credit check before offering an official pre approval. This is a very important step in the process, and I know it sucks because the hard pull does temporarily lower your score, but it is necessary so that you dont have any surprises after you have an offer accepted.
Your credit score can make a big difference when financing a home loan. Most importantly, it impacts the interest rate which impacts your overall monthly payment.
Lenders will start by pulling both your and your partner's credit scores from the three major credit bureaus, which are
The lender will find the middle of each of the scores and then choose the lower middle of the scores to determine the score used on the loan.
So say your scores are 658, 672, and 667. The middle of these scores is 667. Then lets say your partners scores are 760, 742, and 753. The middle of these scores would be 753.
Then the lender will take the lower of these two middle scores so it would be your middle score of 667 for the loan.
Tips to increase credit score
Now that you know how the score is calculated when buying as a couple, you may be wondering HOW to enhance that score.
- One thing you can try is Experian Boost- this program connects to your bank to track your timeliness in paying bills. The program is free and can make a significant difference if your credit score is right on the brink between the lenders threshold for the rates. Obviously if you are frequently late on your bills this program wont help and you are going to want to consult with a credit repair specialist.
- Another hack to increase your score quickly is to call to increase your credit limit on your cards. Your revolving credit usage makes an impact on your score, so if your total limit increases, the percentage you have revolving will decrease. However, DO NOT add more debt to these cards. We want the revolving usage to go down, not up.
Not ready for a hard credit check quite yet?
So lets say you arent quite ready for that hard credit pull from a lender yet I would recommend at least getting a ballpark soft pull to give you an idea of where you are at. One company that you have probably heard of is Credit karma, but honestly this program is incorrect more often that its right so I wouldnt fully trust it. Instead what I recommend is using Experians CreditWorks Premium FREE 7-day trial. This will give you a better reading on all three of your scores initially before chatting with a lender. Just remember to cancel the trial on the 6th day. Otherwise it oes cost $25 per month.
Just a reminder Im not a lender or a credit repair specialist. These are just the pieces that I have learned from lenders while working with my clients during the buying process. If you need more in depth information from the financing side, send me an email and I will be happy to introduce you to a couple of trusted local professionals here in the Twin Cities.
want to learn more?
Check out these blog posts to help prepare you for homeownership and the buying process!