Why Mortgage Lenders Use Different Credit Scores

April 11, 2013 No Comments »
Why Mortgage Lenders Use Different Credit Scores

Are you the type of person who takes great pride in keeping his or her credit score as high as possible? If so, you expect this to work in your favor when applying for a mortgage, car note, or some other type of loan.

But guess what? Things don’t always work out this way. Instead, the credit score you think you have may not be the one your lender actually relies on. As you can imagine, finding yourself in this situation can be quite disappointing.

Generally speaking, every lender has the right to choose which credit score(s) it takes into account when offering a decision on a mortgage application.

As a consumer, it is your job to learn more about how the system works to ensure that you are doing everything you can to not only receive an approval but to obtain the lowest interest rate possible.

According to a report by CNN Money, “one out of five consumers is likely to receive a score that is “meaningfully” different from the score used by a lender to make a credit decision.”

This information is courtesy of a study by the Consumer Financial Protection Bureau upon analyzing “200,000 credit files from the three major credit bureaus, TransUnion, Equifax and Experian.”

Not only are you likely to receive a score that is different than the one used by your lender to make a decision, but the study shows that it could be “meaningfully” different. This means that it could have a negative impact on your ability to receive a loan with the lowest possible rate.

Note: there are situations in which the consumer finds the lender using a higher credit score than what they thought. Obviously, this works in the favor of the person applying for the mortgage.

The credit score you see will depend largely on the type of loan you are considering. For example, if the lender is using FICO scores, which is typically the case, there are nearly 50 scores that determine your risk. For instance, a FICO mortgage score is for homebuyers while a FICO auto score is for those purchasing a vehicle.

As a consumer, here is the problem: there is no way of knowing which score a lender will consider when making a decision. Even more so, this makes it difficult to predict the score they’ll use by purchasing your credit score online. While there is nothing wrong with purchasing your score from the major credit bureaus, there is no way of knowing if this is the number your lender will actually use.

How to hedge against this uncertainty?

If you find yourself in the position where your scores seem to be all over the place, the best thing to do is apply for a mortgage with several lenders in a quick period of time. Typically you can apply for a mortgage and have your credit pulled as many times as you’d like in a 30 day window and (at least FICO) will count it as one credit pull.


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