How does the credit score of spouse affect mortgage loan rates?

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I wish to buy a house with my wife as a co-borrower. Both are working. I have a good credit score. My wife has no credit card yet, never had it. So no credit history. What options do I have.
(a) We apply for a loan together, with my wife with no credit history
(b) My wife first gets a credit card through my credit card bank as an authorized user.
(c) My wife gets a card through my credit card bank as an independent credit user.
(d) My wife gets an american express/costco card.
(e) any other option

In above cases, how long would we have to wait for applying a loan to ensure that our scores are OK to get best loan rates.
We have no joint credit card accounts. My spouse does not have an alternate credit, except her salary based saving and checking bank account. Our
Rental and utility bills/accounts are all in my name.

3 Comments
  1. Reply
    Rusty
    April 29, 2011 at 9:54 pm

    I assume you have no joint credit accounts. If you do, those accounts will show up on her credit report as well as yours. new. Does your wife have any other kind of what is called alternative credit, meaning not shown on your credit report, like a rental history or a jewelery store account etc. The lender can send verification letters to those entities to validate a good payment history. If I were yall, before your wife opens up new accounts, I would make an appointment to see a Loan Officer with the mortgage lender or bank you plan to use. Ask them your question and mine about alternative credit, if it applies. you can also ask to be prequalified as things stand right now. I know if your wife had bad credit it could lower your chances of getting a mortgage, but with no credit I’m not sure. In any case, the Loan Officer will be the best person to give you advice.

  2. Reply
    brett
    April 29, 2011 at 9:56 pm

    Big question, but I’ll try and break it down as best as i can.

    Loans are based on three variables (roughly):
    1. LTV- Loan to Value- which is loan amount over the value of the property. The lower the loan amount relative to the value, the better the interest rate.
    2. Income- How much money you make versus total debt you have (DTI-or debt to income ratio) also, what you have in reserves most lenders will ask for 2 mo PITI (Principal Interest Taxes Insurance). If you can prove you make what you say you make (and spouse) the better the rate, a.k.a. FULL DOC.
    3. Mid Score- Run a tri-merge credit report and pick the middle score of each borrower to calculate the borrower’s credit score. If there are only 2 scores, banks will pick the lower of the two. Most banks will not accept only 1 credit score reporting. In cases of a borrower and co-borrower, banks will take the person with the lowest mid score and use that score to base the rate on.

    Above is roughly how banks arrive to an interest rate for a loan. In your particular situation, a couple important variables to further calculate your interest rate are missing, however, assuming you can keep your loan amount below FHA guidelines that will most likely be the route you would want to take for your home purchase. Your wife will still need to have some credit.

    You may be surprised to find out that your wife may have some trade-lines already reporting to the credit bureaus. If she doesn’t then building credit can be a long process, here are some things you can do to help her out:
    – Add her as an authorized user to your accounts with good, clean history. (ONLY ADD TO GOOD STANDING ACCOUNTS WITH CLEAN HISTORY, you can hurt her more than help her if you add her to a credit account that you forgot to make a payment to a couple years back on. This will also boost her score fastest because it will take your account information and “copy” it to hers, thus giving her well established trade history in a short period of time).
    -Find credit cards that report to all 3 credit bureaus. (make sure they report to all 3 credit bureaus and often. Otherwise you’re wasting your time with those credit card companies)
    -When she gets approved for a credit card (Most likes a secured card) have her pay off or maintain a balance below 25% of the total limit on the card. Use the card frequently, but don’t use more than you can pay off at the end of the month.
    -Never make a minimum payment on a credit card, can be calculated by the bureaus and actually hurt your score. Always make a larger payment, even if it’s 1 dollar more.

    Do not create a whole bunch of inquiries before adding your wife to her own cards, read the guidelines prior to applying her to anything to make sure that it satisfies a couple points I mentioned above. She will only need 2 max of 3 new credit card accounts after that you’re just wasting time. Add her to as many of your accounts as possible that have GOOD history (see above).

    Assuming you do all the following, her score will probably take 6 months to reflect some positive contributions you both did to help her scores, at that point look at her credit and see what scores/trade-lines are reporting.

    Send me an e-mail if you would clarification or a better breakdown of the loan process/ credit process.

    Best of luck on your purchase, don’t be in a rush though, these rates will be exceptional for some time.

    Since you don’t have joint accounts currently, look at your credit report (if you have one, if not, then go to http://WWW.AnnualCreditReport.Com and get your free one with out scores) look at your trade-lines on your credit report and find the credit cards with high limits, low or zero balance, and more than 24months history, currently still open, and no negative marks (missed payments, settled, paid was 30, etc.) these are the accounts you want to call and try and add your wife to. The above website is the only free credit report site you should ever go to, it’s sponsored by the credit bureaus directly per federal law.

    Hope that helps.

  3. Reply
    Sgt Big Red
    April 29, 2011 at 10:06 pm

    If she has no credit accounts then there should be no problem as she has no negative affect. As long as your credit history is fine, then you should have no problems.
    The only time they would turn people down is if both parties had low credit scores or not enough credit history.

    The most important aspect is your combined financial statement (how much you both owe and how much you both have (assets, cash, etc.). They will use this to determine the risk factor along with the amount you are looking to finance and the amount you have to put down.

    A mortgage is far different then credit card or other unsecured debts and they will take not just your credit scores into consideration, but other factors as well. The fact that the home will be the collateral this is considered a secured loan.

    Hope this helps answer your question

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