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Credit Standards for a Conventional Mortgage

A mortgage credit report is a very detailed document containing almost every bit of information about the financial transactions of an individual.  Many creditors supply transactional data to one of the three credit repositories, Equifax, Transunion or Experian.  A data company retrieves and assembles the information and provides the lender with a credit report.  There are probably hundreds of credit reporting companies that assemble and prepare credit reports for lenders.

Part of the process is to determine a credit score based on the information from the three repositories.  This is why most individuals have 3 credit scores, one from each repository.  Each repository uses a different scoring matrix or program which is why the three credit scores are rarely the same number. 

It is important to understand that the credit scores influence the interest rate the borrower receives.  Most lenders use the middle score, this is not an average, it is the number between the other two.  If a borrower has a 650 score from Equifax a 700 from Transunion and a 699 from Experian the middle score is 699 because it falls between 650 and 700.  Not because it is an average or median number, just because it falls between the other two.

Almost every borrower focuses totally on their credit score and nothing else on their credit report.  I suspect because it is easy to pinpoint.  When borrowers asks a lender what is the minimum credit score that is acceptable it is a sign that nothing else is on the borrower’s radar, just credit score.  

However, the credit score is only one piece of the credit puzzle; it is a minimum threshold, not the final word.  An applicant could have a credit score 50 points above the minimum and still not meet the rest of the credit guidelines.

The minimum credit score for a standard conventional mortgage is 640 for most lenders.  One of the reasons knowing the credit score is important is because the interest rate a borrower receives is based on a formula matching the amount of down payment and credit score.