Why is your credit score lower than you expected?

When I talk to clients about credit and what their scores are, frequently they give me a score off Credit Karma or maybe one of their credit cards. Then when I pull their credit, they are surprised when it is lower. Many people don’t realize there are more than one score either. It’s important to know what your mortgage credit score is as it’s frequently different than what you see online. And unfortunately, it’s usually lower. So why does that happen?

Lenders use a different scoring model than many other creditors. Lenders want to make sure you are able to pay back a large debt. An auto lender will use a different model than a mortgage lender, their model predicts whether you may default on an auto loan. The score you get from your credit card company or even Credit Karma is more educational and helps you to understand where your score may be and also what direction it may be heading.

You can check your score before you apply for a mortgage loan at a few different sites. To see a score closer to a mortgage score, you can look at www.annualcreditreport.com or one of the three credit bureaus – Experian, Equifax or MyFico.com. You may have to pay to see your scores, but it will give you an idea of where your mortgage score should be. Because you are looking at the report yourself, there is not an inquiry.

To keep your score higher, make sure you make all your payments on time, keep your credit card utilization low and don’t go shopping for new credit you don’t need. By doing these things, your score should be high enough that you won’t need to worry.

Why does your score matter? It can affect the type of loan you qualify for and also what your interest rate will be. If you will need mortgage insurance, it can help lower the cost. It may also affect your homeowners insurance. It can also affect you when you are looking to buy a car, cell phones and even getting an apartment rental.

You can increase your credit score over time – making sure all payments are on time. Ideally keep your credit card balances at less than 30% of the credit limit. You also want different types of credit – if you only have a student loan and a car payment, it may help your score to get a credit card. Remember to keep the balance low and make the payments on time and your score will increase. I have seen credit scores jump by paying down credit card balances – and you do not need to pay it off, just pay the balance down to under 30% (or less) and your score can jump. Make sure you do not have any collections, a new collection can drop your score 20+ points.

The higher your credit score, the lower your interest rate and the lower your mortgage payment. If you have questions on your credit report, talk to your loan officer. They can help go over your report and may also refer you to a financial counselor. If there are errors on your credit report, you want to report them to the credit bureau so they can get corrected.

Ideally you should look at your credit report at least once a year. That way you know what is being reported and if there are any errors. Then you will be ready when it’s time for you to buy a home!

Leslie Vanderwerf,  NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website

Written By

Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

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