Understanding Your Credit Score

Dated: March 11 2024

Views: 86

Did you know that credit scores are calculated differently for a mortgage loan? Every online service and industry uses different scoring models to come up with a credit score that will be used to determine an interest rate or the ability to get a loan. Whether it's a home, a car or a department store, they all use different methods to determine credit worthiness.

FICO

The most widely recognized score is the Fair Isaac Corporation "FICO" score, which is the industry leader and has been providing credit score since 1956. The other scores you might have heard of are VantageScore (Credit Karma), PLUS Score (Experian), Equifax Credit Score (Equifax) and VantageScore (TransUnion). Credit scores generated by each of the three main bureaus (Experian, TransUnion, Equifax) are often different because they each have their own proprietary software that creates the credit score.

To make it even more complicated, each bureau generates a different credit score for a particular industry. For example, if you had your credit report pulled by an auto dealer, a cable company, a department store and a mortgage company on the same day, you would be amazed by the wide discrepancy among the different scores.

THE KEY FACTOR

Real estate professionals and consumers should be aware that mortgage company credit scores are the most conservative because of the amount of credit that is usually required to purchase a home. 

Because of this, you should get pre-approved with a mortgage lender. Through the pre-approval process, not only will a valid credit score be established, but you will be informed as to exactly how much you can spend on a home purchase.

Also, you should get a copy of the credit report. Federal law allows consumers to request a free copy of their credit report once a year from each of the three bureaus by going to AnnualCreditReport.com.

Although a credit score is not provided on the report, you can verify the accuracy of what is being reported and dispute items that are incorrect or clear up any outstanding issues like collections. The Consumer Financial Protection Bureau (CFPB) started regulating the credit reporting industry in 2012, and they handle credit reporting complaints. Learn more about the work of the CFPB in your area and your consumer rights at ConsumerFinance.gov.

THE BOTTOM LINE

Get your free credit report even if you think you're in good shape. Having a good credit score is not the only factor that will be considered for home financing. If you have inaccurate information appearing on your credit report or collections, you could potentially have to pay a higher interest rate or even worse, be denied for a home loan. Being prepared before home shopping will make the process smoother and quicker.

-Brian S Tewes & Brian A Tewes in "Florida Realtor" July 2023

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Monica Luzarraga

For more than two decades, I've been working as a real estate agent and co-owned a real estate development company. Throughout this time, I have had the pleasure of working with a diverse range of cli....

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