A prospective home buyer with a limited credit history or past credit slip-ups can face difficulty finding a lender to obtain a mortgage. Lenders are frequently unwilling to take on the risk of approving borrowers who lack strong FICO scores, which require the regular use of credit and a track record of on-time payments. Fortunately for such borrowers, a new method to measure creditworthiness, known as VantageScore, has emerged to compete with FICO.
VantageScore requires less credit history to establish a score, and it is more forgiving with certain types of derogatory information, such as paid collections and late credit card payments. The following tips can enable homebuyers to identify mortgage lenders that use VantageScore.
Ask Before Signing
According to VantageScore's website, over 2,000 lenders, including seven of the ten largest U.S. banks, use its scoring model as of 2015. However, few such lenders have abandoned FICO entirely. Most use a combination of both. Particularly for borrowers with credit issues, it is important to understand the scoring model used by a lender before signing a loan application and agreeing to credit being pulled. Haphazardly submitting loan applications in hopes of landing a hit can result in excessive credit inquiries, which can further depress a credit score.
Part of a loan officer's job is to understand his employer's criteria for approving applicants. This includes knowing which credit models are used and how they are weighted versus one another. Borrowers wanting to be scored by VantageScore should glean this information from the loan officer up front.
Use a Mortgage Broker
A mortgage broker is a good option for credit-challenged borrowers because brokers work with many lenders, all with different approval criteria. A good broker can look at a borrower's application and determine which lender in his portfolio best fits that borrower's needs. If a broker's portfolio of lenders is robust, it should include some that use VantageScore as a primary source of credit information. The borrower should ask the broker to steer his application in the direction of such lenders.