Credit Scores

With very few exceptions, one of the first things a potential lender will ask you for when you are apply for a home loan is your permission to run a credit check. If you have some concerns about your credit history, you might want to think about what some people call "no credit check mortgages." There are lenders that specialize in helping people with bad credit get into their own homes and acquire financing at a reasonable interest rate.

Unless you are applying for a VA Home Loan Refinance, pretty much any legitimate lender is going to check your credit. However, your credit score is not the only consideration lenders will look at when you apply for a loan, and you should not think of it as the only determining factor. Some loan products are designed for people with a less than optimum, or sub prime, credit profile. Lenders who specialize in these types of loan products will weigh in other factors when considering your loan application. If you can provide verification of income (through W-2s, pay-stubs, and past years tax returns), and if you can provide personal references and documentation of your ability to meet your financial obligations, such as rent payments or deposit receipts, then you may be able to qualify for one of these types of loans.

Also, the fact that you are already a homeowner will weigh substantially in your favor when you approach a lender to refinance. As long as your Loan to Value Ratio (LTV) is high, the bank will take that into account when determining the risk of lending you money. It is likely that they will also look at the timeliness of the payments you have been making on your existing mortgage.

Your credit score is based on an average of the scores from the three major credit bureaus (TransUnion, Equifax, and Experian), and generally the middle score is the one used to determine your rating. When looking for a no credit check mortgage, shop around to as many lenders as you can and talk to loan officers to see what they recommend to improve your score and overall risk profile. You may not qualify for the same loan that a borrower with excellent credit could acquire, but many lenders will work with you to help you get a mortgage product that works for you.

The process of credit scoring that we use today was first developed in the 1950's, over the years this process has increased tremendously since the early 1980's. Using statistical models to assess an individual's credit worthiness, the three major credit bureaus Experian, Equifax, and Transunion calculate your credit score based on your credit history and your performance in paying off your current credit accounts.

The credit bureaus compile information that is provided to them by your creditors, and use that information to calculate your credit score. Working with a company called Fair Isaac, the credit bureaus developed a scoring model in the 1980's that allowed each bureau to offer its own credit score, based entirely on the content of that credit bureau's data.


Each of the three major credit bureaus uses its own unique system for compiling data and calculating scores. However, scoring models are relatively normalized, to the extent that your credit score at one bureau will be roughly equivalent to your score at another. For example, if you receive a score of 680 from Experian, you can expect a score somewhere in the same range from the other two bureaus, even though the calculations used to arrive at that score are different.

Although each credit bureau uses its own methods to compile information, the same general factors play a part in the calculation of your credit score. 35% of your score is based on your payment history. 30% is based on the amount you owe. 15% is based on the length of your credit history. 10% depends upon the types of credit you use, and another 10% is determined by any new credit you take on.

Banks, credit cards, and other lenders use your FICO score to evaluate the potential risk of lending money to you. Having a good FICO score means you get better rates, higher credit limits, and other benefits. It's important to know your credit rating if you plan to apply for a home loan, car loan, or any other form of credit lines.

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