Why is the credit score that I have different than what the Mortgage company tells me?
When it’s time to look for a mortgage, most buyers are confused with the difference in the credit score they have seen on their own and what the mortgage lender tells them. Many times consumers are monitoring their credit through either their credit card companies or the popular sites like Credit Karma, Credit wise or even myfico.com. While those are all popular sites to effectively monitor your score, when you apply for a mortgage, lenders will pull versions that are specific to mortgage lending. The majority of the time, the scores are different from what the consumer thinks their score is and most times they blame any drop on the inquiry with the lender. While that can be a valid reaction, that is usually not the reason for the difference.
There are over 20 different scoring models. The reason for this is that each industry has a different level of risk they allow so they use the version that has their specific risk needs factored in. If you are just looking for a consumer model and not taking out a debt, then there is no risk factor needed. The consumer models are used to help you monitor your credit and alert you if your tendency is a high or low threat to your score. The most widely used versions for consumer monitoring are FicoScore 9 and FicoScore 8.
What Do Mortgage Lenders Use
The versions used in mortgage lending are FicoScore2, FicoScore 5, and FicoScore 4. These models are formulated with emphasis on payment history, collections, and past serious delinquencies. If you are taking out a debt in the hundreds of thousands, your credit is scrutinized much harder than a person getting a $500 balance on a credit card.
Thinking about buying a car? The automobile industry uses Fico AutoScores 2,4,5,8 and 9. To confuse consumers even more, credit card companies use Fico BankcardScores 2,3,4,5,8 and 9. On top of that confusion, there are some newly released versions; FicoScore 10, Fico AutoScore 10, Fico BankcardScore 10, and FicoScore 10T.
So how do you find out your mortgage score without having your credit pulled? It’s very hard to get the correct scores because FicoScore 8 is the most widely advertised available score. If you pay for this score, it will not be useful for a mortgage lender. It is best to work with a lender and allow them to do a hard pull credit and provide you with the 3 scores. The mortgage industry needs a tri-merge report; gathering a score from each credit bureau. The 3 major bureaus are Experian, Equifax,and Transunion. The scored that is used for the mortgage loan is the middle of the 3.
Do Credit Inquiry’s Hurt My Score?
If you have heard the myth that credit pulls hurt your score, understand that all the versions of scoring models treat inquiries differently. So, if you are relying strictly on FicoScore 8, then it will likely show a hit. But if you want to know your score for rate purposes on a mortgage, your best option is to take the plunge and get it pulled. Many lenders also have a service that can tell you what to do to increase your score. Ask the lender you choose to work with if they can run the credit simulators before you choose to work with them. This could cost you if they don’t have that option.
If you wait until you the last minute to allow a lender to pull your credit, then you will have less time to improve your credit. Lenders who have the credit simulators can also tell you if your score will be negatively impacted by a future financial decision.
Can I Have Multiple Lenders Pull My Credit?
The other concern consumers have is shopping for the best fit lender. If you have multiple lenders pull your credit within a 2-3 week window, the inquiry will only count as one, even though you will see multiple pulls on your report. So, don’t be led to believe that you should not let another lender pull your credit. That may be coming from a newly licensed loan officer or one that could be nervous to lose you as a client. The Consumer Financial Protection Bureau wants you to make an educated decision as to the lender you choose. In addition, a lender is not able to use a report that was pulled through a different lender. Each lender must run the ID number of their report through an automated underwriting system.
Because a credit score plays such a huge role in the terms of your loan, arm yourself with the information to get the best options possible. With credit tiers having increased on May 1, 2023, you will want to make sure you are in the highest tier possible.
Select this link to learn more about building or improving your credit score.
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