Credit Scores are Not All Created Equal
If you currently carry a credit card from almost any major credit card company, you've probably been offered an opportunity to opt-in for a monthly "free" credit score reporting service ...
consumers. Other companies and websites can offer a very similar service.
These "freebie" services can prove to be a valuable tool, as they alert consumers to changes that take place in their credit scores. But the information and value offered can go well beyond that one service.
Via their monthly reporting, these services can also assist in catching Identity Theft that has taken place. Errors in credit reporting can also be found via this method.
When hoping to improve credit and credit scores, the monthly monitoring services can prove immensely beneficial to consumers, both monetarily and emotionally. The credit progress, seen more immediately and in real-time, serves to reinforce good credit habits.
But while there are many positives to knowing and monitoring credit scores in this manner, consumers must be aware, it also has its limitations ...
When it comes times to finance a home, the credit scores received from credit card companies are NOT the scores that a mortgage lender will depend upon when seeking a mortgage approval. Nor will they be the credit scores relied upon throughout mortgage underwriting and processing.
Why?
The credit reports compiled by most mortgage lenders for their home lending purposes use a different credit scoring model (FICO) from those used by credit card companies (and car dealers, utilities, appliance sales, etc.) Businesses that provide credit repair and credit improvement services also typically rely on scoring models different from those that are used by mortgage lenders.
I've often found as a loan officer, that the credit card credit scores provided to consumers are higher than the FICO scores mortgage lenders depend upon. That can turn out to be very disappointing for hopeful homebuyers, especially those that are more credit score-sensitive.
This is the reason I so strongly urge that anyone hoping to buy or finance a home speak to a mortgage lender early in their financing journey. Six (6) months to a full year is not too much advance time.
The reasoning for my advice is simple. Hopeful home buyers/borrowers will possess the credit scores their mortgage lender will be utilizing as they move forward with their application. Those are the scores that really matter.
It's helpful for mortgage applicants to also be aware of the following info, as it pertains to credit scores and credit scoring:
- Experian, Transunion, and Equifax are the 3 major credit bureaus most often utilized by mortgage lenders for home lending purposes
- It's especially important to check your credit and monitor your accounts well prior to applying for a mortgage loan. (Again, I strongly suggest 6 months to a year)
- While each of the 3 bureaus gathers much the same information regarding your credit use/standing, they do NOT share the information with one another
- Consumers can view their credit reports and receive a FREE report from each of the 3 bureaus once per year
- Consumers can also get a copy of their FREE credit report if they've been declined credit. However, the request must be made within 60 days of being declined
- A free credit report can be obtained every 12 months at www.annualcreditreport.com
- Inaccurate information found on a credit report can be disputed. If hoping to finance a home relatively soon, I recommend that you speak with your mortgage lender PRIOR to taking action. (Read why: Disputing Disputed Accounts)
- Credit bureaus can also place a credit "freeze" (or fraud alert) on credit reports for consumers
- A credit "freeze" must be placed separately at each of the 3 Major Credit Bureaus
- A "freeze" and a fraud alert are NOT the same things
- A "freeze" does NOT limit your ability to receive a free annual credit report
- It's vitally important that you continue to monitor your current existing accounts for irregularities, errors, and fraud
- A credit "freeze" can be temporarily removed from your credit report for specific inquiries or designated periods of time.
- You will be required by your lender to remove the "freeze" at the time of your mortgage application and again at the Closing of your mortgage, as your credit must be run and then re-examined by your lender at these times
The best way to tackle these topics? Head on.
Talk to your mortgage lender now. Ask your credit questions well in advance of your home buying or refinancing.
Doing so will save you money, time, and lower the level of stress you feel later ...
Are you hoping to Buy, Refinance or purchase an Investment Property in New Lenox, Will County, or elsewhere in the Chicagoland area?
Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
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