Real Estate News with Terri Taydus, GRI, CNA

Beward The Accuracy of FREE Credit Scores

September 22nd, 2016 12:03 PM by Taydus Taydus


As more and more companies offer free credit scores, we as lenders are getting more and more shocked and upset clients because their credit score is not as high as was indicated by the online scoring services.

CreditKarma seems to be the worst and scores can be as much as 150 points higher than their actual FICO score.  Why is this?

There are several different answers based on the service that you use to pull your score.

For the major reporting agencies, TRANSUNION, EXPERIAN, and EQUIFAX have developed their own model which they would like to see replace the current FICO score.  Their scoring system is called VANTAGESCORE.  As an example, FICO scores range between 300 - 850 while VANTAGE scores range between 501 - 990 so right there you would have a large disparity even if the algorithm was exactly the same.

The scores for most of the free services are considered "educational" and are not the REAL FICO scores that lenders use.  Supposedly if you read the terms and conditions of CREDITKARMA it states that they use a different scoring model than any of the major reporting agencies.

If you want your actual FICO score that is used by all of the major financial institutions you need to go to and pay for them.

The bottom line is that you CANNOT rely on the free credit scores and you should not use them to monitor your credit.

Other factors that impact your score even for companies using FICO is that companies are coded by industry.  For example, if you apply for a credit card the score will be weighed more heavily towards your revolving credit history.  If you buy a car it will look more closely at your history with installment debt and likewise with mortgages the score will be scrutinized even more because of the large loan amounts and the higher risk of such transactions.

Other entities and even some mortgage lenders will only provide you with one score when in fact FNMA requires that you pull all three scores and the middle score is the one used to calculate your credit worthiness.

All three major reporting agencies use the same FICO algorithm so why do the scores vary?  The reason is that not all businesses report to all three bureaus so the data reported is different and hence the difference in the actual score.

For a potential homebuyer your first step to buying a home is to find a lender to work with that offers free credit scores and free credit analysis to help you understand your score and how to improve your score.

Everyone is looking for the lowest rate and the best way to get the lowest rate is to get your credit score over 740.

The other reason to start the home buying process with the credit analysis is that time is your friend and the more time you have to increase your score the better your results should be.  Often it is as simple as paying down balances and/or opening a new card.

You also want a lender that will work with the bureaus and update your score for you.  If you wait for the creditor to report the changes to the credit bureaus it could take months whereas a lender can get you a rescore typically within 5 - 7 business days.

In summary, you want to know your FICO score before starting the home buying process.  You ideally want a score over 680.  You can get a loan with a score as low as 580 but you will not be happy with the terms or rate especially If you put less than 20% down as it will also adversely impact your mortgage insurance premium.

The milestones that you want to shot for go in 20 point increments from 680, 700, 720 and top out at 740.  There are negligible opportunities to lower your rate even more over 740 but in general any score over 740 will get you the best terms available.

As a last note, DO NOT pay off old collection/derogatory accounts without talking to someone with knowledge and access to the scoring parameters as it is typically in your best interest not to pay off this debt as it does little to improve your score and can actually have a negative impact on our score.

You should speak with a qualified lender before signing up with any of the CREDIT CORRECTION companies as most are for profit and do so at an expense to you.  They often offer to negotiate a lower pay off but fail to tell you that this will probably still have a negative impact on your score.

Joe Taydus of Mutual Security Mortgage in Boulder offers all of the above services and does so at NO COST to his clients.

The above information was provided by Joe Taydus of Mutual Security Mortgage in Boulder CO. For more information, please contact Joe directly:
(303) 443-5575 - Office
(303) 514-1151 - Cell
NMLS# 309188  LIC# 100017955

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Posted by Taydus Taydus on September 22nd, 2016 12:03 PM


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