Credit Score Requirements for Attorney-Specific Mortgages

Despite the credit score requirements for attorneys, Attorney Mortgage can help you qualify for a loan. However, it is important to understand the Fair Credit Reporting Act, what your credit score consists of, why you should take steps to improve it, and how you can begin the process. 

The Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) was passed by Congress in 1970, and it applies to organizations that collect information on consumer finances. Banks and credit unions collect this data for lending information purposes. Three large reporting agencies – TransUnion, Experian, and Equifax – are credit reporting agencies that many banks and other organizations use to help them determine a person’s credit health. The FCRA regulates these agencies and requires them to offer fair and accurate summaries, using specific guidelines to collect and protect information:

• The three reporting credit bureaus are required to supply a copy of your credit report to you.
• You have access to your credit score, but you may have to pay a fee.
• You are allowed to file a dispute with the reporting bureau if there is information included that is inaccurate. The bureau is required to correct information within a 30-day time period. 
• The report is secure from random searches for your credit history. A consumer must give permission to any entity for access. 
• Most negative credit information on a report is removed after 7 to 10 years.
• Lenders must inform you of negative information on a report that had weight in their decision to deny a loan. 

Your Credit Score

Some credit card companies offer a free look at your credit score. When you look at one or all of the reporting bureau reports, the numbers may vary. However, the differences should be minimal.

Credit scores vary for a few reasons:

• Lenders may not have reported your score to all three reporting bureaus. This will skew the end result. 
• A change in reporting may have occurred. If you have recently paid off a credit card, your numbers will change. If you have late fees on another, this will move the numbers in a negative direction.
• Each reporting agency has its own scoring model that takes every factor into consideration.

Are Credit Scores the Same as FICO scores? 

FICO® Score is a credit score, but a credit score is not necessarily a FICO® score. VantageScores and FICO scores are credit rating sources used by lenders to make decisions regarding credit risk, interest rates, and other factors in the lending process.  Both have a ranking scale from 300 to 850. To the lender, a low credit score number means there might be a high risk that borrower might default on the loan. A high number typically means that person is a low risk. 

How Is a Credit Score Determined? 

A credit score can be divided into five parts:

• How much you owe. Your debts will make up 30% of the credit score. To find out your credit utilization rate, divide the amount of credit (not your debt) you are allowed by the amount of debt. You are a good risk candidate if your number falls below 30%.
• Your payment history. This usually takes up 35% of your overall score, and the past two years are the most important.
• The age of your credit history. Keep those decades-old credit card accounts open! Credit histories with long pasts show a good relationship with lenders and make up 15% of your score.
• The diversity of your credit. Are your lines of credit from a mixture of lenders, such as department stores, auto loans, credit cards, and others? This shows the lender that you are good credit manager, logging in 10% of the overall score. 
• The number of new credit applications. This is 10% of your score. But don’t start applying for new credit lines – each application opens an inquiry into your credit report and can be a red flag for a lender. 

In 2022, the three most well-known credit reporting agencies — Equifax, Experian, and TransUnion — decided to stop the inclusion of certain forms of medical debt on credit reports, The change included borrowers with already paid debts, unpaid debts less than a year old, and debts paid or unpaid under $500. This decision had a bearing on credit scores and the ability to obtain loans for some consumers.

How to Improve Your Credit Score

Attorney Mortgage is available to help you look at your credit history and discuss ways to improve your mortgage options including portfolio loans. The best time to begin improving your credit score is now, whether you are considering buying a home or not. Some steps to consider are: 

• If you have no credit file at all, start to build one. Open a new account at a company that reports to a major bureau, such as a credit card company or a department store credit account. But remember, opening too many new accounts can harm your overall score. 

• You can sign up for a free Experian membership and create an Experian credit report. If you are managing utility or cell phone payments on time, Experian’s Boost program allows these otherwise excluded credits to be factored into your Experian FICO® Score. 

• Set up automatic bill payments.  Don’t miss loan payment deadlines or payments to utility companies, as late payments will be reported to the credit reporting bureaus. Using autopay on monthly or one-time payments such as subscription services takes the worry out of bill payment and avoids negative reporting that could lower your score.

• Start paying off accounts. As you pay down the balance, your credit utilization rate decreases, having a positive effect on your scores. Aim for 30% or less on your credit utilization rate. Routinely check your credit card activity to spot overcharges, missing refunds, or fraudulent charges. 

• Pay attention to your score. If you see a change for the negative, check into your credit report. Look for inaccuracies or entries that may indicate identity theft. 

Purchasing a home for the first time can be challenging but rewarding. If you are a newly degreed attorney, an established attorney looking for a home, or if you are ready to re-finance your home, Attorney Mortgage is here to help you navigate the loan process. Contact us or call (816) 379-6264.