The Federal Reserve’s efforts to fund financial markets in order to support the economy during the COVID-19 crisis have led to lower consumer borrowing costs. This is evident in the fact that the average rate on a 30-year fixed mortgage fell below 3 percent to 2.98 percent.
With such attractive mortgage lending rates, thousands of homeowners are attempting to refinance their mortgage loans in order to reduce their monthly payments.
Having said that, lenders have made it more difficult to gain approval for these lower mortgage rates by tightening up their lending criteria in response to the uncertain economic conditions brought about by the pandemic.
Refinancing your mortgage is an attractive option right now, yes, but you need to ensure you meet lenders’ criteria and have access to the credit scores they require to evaluate your application.
The 3 Credit Scores You Need to Know for Refinancing Your Mortgage Loan
When evaluating mortgage applications, most home mortgage lenders that issue new mortgage loans and refinance existing mortgages generally use specific versions of the standard FICO Score, with a score range of 300 to 850:
- FICO® Score 4 based on TransUnion data
- FICO® Score 5 based on Equifax data
- FICO® Score 2 based on Experian data
The mortgage market is dominated by these scoring models because the country’s largest residential home mortgage loan purchasers, Freddie Mac and Fannie Mae, mandate their use. In order to meet their requirements, lenders selling mortgages to these purchasers use these FICO® models.
Understanding the Differences between TransUnion, Equifax and Experian Credit Scores
TransUnion, Equifax, and Experian are the three credit bureaus that compile and maintain information regarding your credit usage in monthly reports from your lenders. The timing of these reports tends to vary by lender and bureau.
This means that the contents of these credit files aren’t always identical. With that in mind, even if the different bureaus use the same credit scoring model, the odds are that there may be some discrepancy in the scores. Sometimes, the discrepancies may be as much as a difference of twenty points, or even more.
Lenders recognize this and generally request your credit scores from two or even three of the bureaus when evaluating your refinancing application. While this certainly isn’t applicable across the board, many lenders who request scores from two bureaus tend to go for the lower one when making their decision, whereas those that request all three consider the middle score.
Improve Your Credit Score with Recovering All Investments
We offer a variety of solutions to help Texas homeowners stop foreclosures in their tracks, including making payment arrangements for late fees, back mortgage payments, and closing costs, professional credit repair, and leasing and selling your property back to you.
Get in touch with us for more information on our services.