Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
In general, I try to share timely topics, current news and recent experiences that I encounter in dealing with clients on a day-to-day basis. This past week I had repeating situations that reminded me just how much confusion there is out there as it pertains to “Credit Scores” and the credit reporting agencies.
In one of my recent situations, I had a client that called me who had an accepted offer on a home and was starting their “mortgage shopping” process. After spending some time going through the details of his situation, an obvious question struck me. How did he get his offer accepted if he didn’t yet pull his credit, and was now first beginning to look for mortgage financing? He explained that he had his credit report pulled over nine months ago by a broker and has since been working with a credit repair specialist. But he was confident that his score is over 700. With that estimate, he was able to get a pre-approval “online” without the need of a credit pull. The scenario is not uncommon but often leads to many challenges and issues if the buyers are not truly qualified.
I urged him to run a real “mortgage credit report” as soon as possible, because more often than not these credit repair places are not legitimate. He was still hesitant to allow me to pull credit and kept insisting that I quote the rate based on the “minimum” 700 credit score that he was confident he had. We ran through a few scenarios, and monthly payments, and he was on his way. I was surprised that I didn’t hear from him for a while, and when several of my calls and emails went unanswered, I started to circle back to my notes to see if I missed something in my discussions and understanding of his situation.
This week I finally heard back from this person who had much to say about what he was busy with over the past few weeks. For starters, he did go to the “friend of the credit repair guy,” and although that friend wasn’t really in the mortgage business officially, his experience was far worse than that. They ran his credit, and his score was actually 721, but they said he was not eligible for the mortgage without removing all the “credit disputes” on his profile. You see, one of the ways that these un-reputable credit agencies get your FICO score to improve quickly and drastically is to “dispute” accounts which remove it from the FICO calculation. They obviously do this on any derogatory account, which immediately has a favorable effect on that person’s score. Banks are familiar with this “hack” and require the disputes to be removed, which makes the FICO drop again. His “real” credit score was closer to 600 with those accounts included.
Under pressure to move forward with his pending purchase, he suggested to me that I use the “credit report” that his repair guy gave him which was in the high 700s. Of course, I noted that I could not take his credit and that banks and mortgage lenders use specific reports when qualifying mortgage applicants. My advice here is to make sure you are looking at the correct mortgage FICO scores since there are hundreds of scores sold (or offered for free) that are not “FICO scores,” nor are they the version used by banks for mortgage purposes. Lenders look at the middle credit scores from the three core agencies – Experian, TransUnion, and Equifax. It is imperative to know all three, and it’s important to know that the bank takes the middle of the three, not the average. The difference to this buyer was about $200 a month and a lot of wasted time trying to “fix his credit” along the way.
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