What You Don't Know About Your Credit Score...

Is this you? You are considering purchasing or refinancing a home. You are spending hours hunting online looking at numerous websites for homes for sale. Also, you consult many other websites to find the best interest rate & terms for future monthly mortgage payments. You want to do the right thing and be informed and plan ahead, right?

So many of my clients have felt betrayed & cheated using this system. The credit scores they counted on to get the specific interest rate for their loan are not used by real mortgage lenders.

A Google search for “credit score” will yield hundreds of results. You click on one or more and then you accept the provider’s terms and conditions to get a free credit score. Terrific! In exchange you just received a meaningless credit score that lenders never use. You also handed over their Non-Public Personal Information (NPPI) to that credit score provider for life. GULP!

Let’s get real: here are the available credit scoring products available to consumers today:

FICO credit score from Fair Isaac Corporation/myfico.com, range 300 to 850
Plus Score from Experian, range 320 to 830
Trans Risk Score from TransUnion, range 300 to 850
Equifax Credit Score from Equifax, range 300 to 850
Vantage Score from all three bureaus, two ranges, 300 to 850 and 501-990

What is a FICO Score?

In 1958, Bill Fair and Earl Isaac, a mathematician and engineer, formed a company in San Rafael, California. They created tools to help risk managers make a better decision when taking financial risk. Today, 90 percent of all lenders use the FICO score, first created in 1989 by Fair Isaac, and it’s the only score Fannie Mae and Freddie Mac, the Federal Housing Agency and Veterans Affairs will accept in underwriting loans they guarantee.

What is a Consumer Score?

The three credit bureaus, in their understanding of the credit scoring model created by FICO, decided to create their own scoring models, and in 2004 – 2006 they unveiled the “consumer” scores: Plus Score, Trans Risk Score, Equifax Credit Score, and Vantage Score. However, these are not genuine FICO scores, and mortgage lenders don’t use them. Consider this comparison: Would you buy a watch that gives the approximate time of day?

The three credit bureaus work with major financial institutions, professional organizations, comparison sites, personal finance businesses, clubs such as Costco, AAA, Sam’s Club, and many data-mining brokers to bombard consumers in the race of the free credit score mania, all with the enticement of a “consumer” score that is not used by lenders, in hopes of obtaining subscriptions or fees from consumers. Fees that are totally unnecessary!

Know Your Score

Gaining access to your own credit report and credit score prior to loan approval with no strings attached is very helpful. And, you will need a letter of qualification to purchase a home anyway. With little effort, a great lender can guide you on how to correct inaccurate information at the credit bureau level, and with a few simple steps, credit scores could be enhanced. So where can I get this free information?

More Information

You have a legal right to access their annual credit report at no charge once a year from annualcreditreport.com, a site sponsored by the three major credit bureaus: Experian, Equifax and TransUnion.

These reports provide all the basic consumer data, but do not reveal a credit score. If you have a need for the FICO credit score that is actually used by mortgage lenders, myfico.com is the website to visit. For $19.95 per bureau, you can purchase a customized credit report with a genuine FICO score.

Additional websites to visit: the Federal Trade Commission and the Consumer Financial Protection Bureau for true answers to questions about any financial concepts, financial products, dispute and complaint submissions, and much more.

Or, if you want the best local advice and information, contact me. My team of advisors, lenders and I will help you get in shape for the best possible mortgage rate you can get. So, stop roaming the internet in the middle of the night, get a good night's sleep, and give me a call!

Elizabeth Scott, Realtor®, Broker