I look at credit reports every day and also get asked questions about them daily! Here are some things you should be aware of regarding your credit score.
- What is a credit score? It's a number between 350 and 850, based on a mathematical model that evalutes your credit report information. Mortgage scores are typically different than what you see on credit reports such as Credit Karma. The number reflects your credit worthiness. Typically the higher the number, the higher the probability that you will repay your loan on time.
- How are credit scores used? Credit scores are used by mortgage companies to help determine if they will loan money to someone to buy a home and at what interest rate. They are also used by insurance companies and some landlords will use them to determine if they will rent to you.
- Do you have more than one credit score? Yes. There are three main companies, Experian, Trans Union and Equifax. They report the information to the vendors that use the data. Each vendor may score your file slightly different. There are also different models used for auto financing, mortgages and even credit cards.
- Is one score better than another? It depends on what you are trying to do. Mortgage lending tends to be more of a financial forecasting – basically what are the chances you will repay your mortgage over the next 30 year. Mortgage scores tend to be more of a predictive type of score. Most lenders are using the same credit score formula as it has been fairly standard over many years.
- Why is the credit score I get from my credit monitoring service different than the mortgage credit score? Credit scores change frequently- sometimes daily. It depends on what is reported to the bureaus and not everyone reports to all three bureaus. So your credit monitoring service may only be looking at one report and it may not be pulled the same day as the mortgage report. Plus the mortgage report will probably have a different formula to arrive at your credit score than what the credit monitoring system has. I see this frequently – I will get a call that someone looked at their report and the score is 720, I pull the report and I get a score that may be 15-20 points lower -sometimes it higher, but usually it's lower.
- What is the best advice for realtors and consumers? Check your credit report, you can check your report annually for free at www.annualcreditreport.com and see what is on the report. It won't give you a score, but it can tell you what is there in case there are errors. If you are not sure what is on your report, check it on a site like this one or ask your lender to pull your credit report. If your lender pulls a report, it will show as an inquiry and may affect your score – but your lender has to pull the report to get a valid mortgage approval. I try to look at my report every year – I'm watching for any sign of credit fraud – someone opening accounts I don't know about and also any chance of an error on the report.
Your credit report does change and you can improve your scores over time. If you make your payments on time, keep your credit card balances under 35% of the available credit, do not open new accounts frequently, you should have a good credit score. Watch your report for mistakes or any type of fraud. I've seen mistakes on credit reports so I know it can happen. If you are concerned about your report or you have had credit fraud, I would check it at least once a year.
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc, AnEqual Housing Lender, NMLS#150953 - Email - Website
