One Credit Score Borrower Success Story
Most know that mortgage lenders pull all 3 credit bureaus to determine a loan approval and that lenders use the middle of the 3 credit scores. When borrowers have only 1 or 2 credit scores, it usually means there is limited credit experience recently or there are credit issues. But this is not always the case.
Reasons There Are 3 Different Credit Scores
- The credit bureaus are 3 separate entities
- Each creditor chooses which bureaus to report
- Each bureau uses different credit scoring models
- Balance, pay history, etc are sometimes reported at different times
- There could be an error in one of the bureaus and not the others (check your credit once per year!)
One Credit Score is Not Always a Negative
While getting a mortgage approval for a borrower with one credit score can often be difficult, there are times that the borrower has a good reason for having just one score. For instance, there are times when people have all of their credit accounts with a creditor which only reports to one bureau. Many times these one-bureau creditors are credit unions or smaller banks / finance companies. In these cases, it is not unusual for someone to have a mortgage, car loan, and a credit card, all with the same one-bureau reporting creditor. If this happens and the accounts are paid well, then the borrower could actually have one great credit score but have a zero for the other two bureaus. Does this mean the borrower is a higher risk? No, because a borrower like this would have one score because of their creditor not because they don’t pay their bills on time. But it can still be an issue with a lot of mortgage companies because so many require a minimum of 2 credit scores.
How to go From 1 Score to 3 Scores Quickly
It is recommended that everyone has 3 good credit scores and it is actually easy to get the two other credit scores. Just opening a credit card or two, charging a small amount monthly, and then paying it off in full each month would help someone go from zero scores to have great scores. Now this could take a few months for the history to be sufficient for credit scores, but it shouldn’t be long. The reasons to use credit cards or lines of credit (that report to all 3 bureaus) to build new credit is as follows:
- You don’t have to go into debt to get credit! Pay off the balance monthly
- 35% of a score is pay history. Charge a small amount and pay it off on-time
- 30% of a score is balance compared to credit limits as a percentage! Many don’t know this big secret!
So when building credit, a loan payment would miss out on 30% of a credit score, so make sure to open a credit card first! But we do have solutions for these one-score borrowers.
Our Recent One Credit Score Success Story
We recently had a refinance closing where a borrower with one credit score was able to consolidate the mortgage, some credit card and loan debt, and obtain extra for some home improvements. Here are the basics of this scenario:
- Former bankruptcy
- One good credit score (because the borrower’s credit union only reports to one bureau)
- Cash out refinance
- Saved hundreds per month while also getting home improvement money
- Modular home
- All debts paid on-time since bankruptcy
The end result is the homeowner is in a better financial position which will allow for a less stressful life. Let us help your become a success story too!
- All I have is one credit reference, so can I buy a home?
- What to do with those old credit cards to increase your credit scores
Author: Russell Smith
Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.