You know the importance of credit scores when it comes to getting the best interest rate possible on a mortgage. The higher your score, the more likely you are to get a good offer when you apply for a mortgage. So, you make sure to check your score before you visit a lender. But, when you do speak to a mortgage lender, the score he or she gives you is vastly different from the score you paid to get.
What gives? As CNN Money reported in 2012, you don’t have only one credit score. You actually have at least 49, if not more. There are so many credit scores because there are so many ways of reporting them and calculating them. If a mortgage lender uses a different scoring method than the company you used, it’s likely it will get a different number. This can be a good thing if the score is higher and not so good if the score is lower.
Credit Scores 101
Companies that figure out credit scores use a variety of different factors to calculate your score. The Fair Isaac Corporation (FICO) looks at your payment history, how much you owe, the type of credit you have, how long you’ve had credit, and if you have new accounts when figuring out your score, which can range from 300 to 850. Along with FICO, there are a number of other companies, such as BEACON and Vantage that also determine scores.
Different Reporting Companies, Different Scores
If you have ever looked at your credit report from each of the three credit reporting companies at the same time, you might have noticed some variations. Not every loan or credit card necessarily reports to every company, so one report might not have a certain account on it while the other two do. Since that account isn’t on your report, it won’t have an impact on the score you get from that reporting company.
Different Criteria
Depending on who’s requesting the score, a company might use a different model to calculate it. For example, the score you get as a consumer is often called a generic score. It’s meant to give you an idea of where your overall credit stands. A mortgage lender might use an industry specific score, such as FICO score 2, which puts more weight on your experience with housing and mortgage loans than on your experience paying back credit cards or car loans.
Although you have no way of knowing whether your generic, consumer score will be vastly different from the score your mortgage lender uses, a study conducted by the Consumer Financial Protection Bureau found that even though the scores received by a consumer and a lender might be different, the consumer fell into the same credit-quality category between 73 and 80% of the time.
Concerned about your credit scores? Talk to a mortgage specialist today to learn more about how to increase your score and get the best mortgage possible.
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