Lender Shows Different Score?

Different Credit Score with Mortgage Lender

Different Credit Score with Mortgage Lender

Ever applied for a home loan expecting one credit score and have your home loan officer tell you your score is different?  This happens frequently.  In fact, if you have pulled your credit on a site like freecreditreport.com prior to your mortgage lender, chances are very high your lender will generate a different credit score.

What is a FICO score?

FICO stands for “Fair Issac’s Corporation” which is a company that holds over 130 patents for technology and leads the industry in data collection and reporting.  Over the years, they have created numerous credit scoring algorithms.   The very first FICO score algorithm (or calculation) was released in 1989.   Since then approximately 50+ additional FICO algorithms have been created.

Why all the versions of your credit score?  According to FICO and industry risk assessment experts, determining someones credit behavior is product specific.  In other words, the chances someone will pay for their auto loan, their mortgage or their credit card on time may be different for the very same person.  Meaning, the same person might make their mortgage payment and auto loan payments on time but they may not make their credit card payments.  Creditors need ways to find out how that person stacks up relative to their product to make the best credit and lending decisions.

Credit reporting is nothing more than a way to try to tell the future.  Creditors use credit scores to see if a consumer will be likely to pay them back.  Credit scoring embodies the idea that past performance predicts future behavior.  If person “x” has a propensity to make their mortgage and auto loan payments but not their credit card payments it makes sense to develop different credit reporting tools that will indicate that to each creditor in a tailor fit way.

Different Credit Scores Power the Economy

The idea of consumers having strengths and weakness paying bills translates into someone (for example) having a higher credit score on a FICO algorithm that mortgage lenders use (ex: FICO 5) and on FICO algorithms that auto lenders use (ex: FICO 9xt) while at the same time having a lower credit score using a FICO algorithm that credit card companies use (ex: FICO 8).  In this example, the varying credit scores would tell the mortgage and auto lenders this is a good risk  consumer while telling the credit card company they a bad risk   To see the value of having multiple FICO algorithms, imagine all industries/creditors used the same FICO score the credit card company used to make their lending decisions.

In that case, the same person mentioned above would also be denied access to a new home purchase and a new auto loan.  That idea, extrapolated out over the entire economy directly impacts job growth and economic growth.  If someone is getting declined for a car loan and an auto loan because all creditors used just one basic set of criteria to evaluate them as a credit risk companies that make cars, car products, fix cars etc… would need to make less cars, less car products and fix fewer cars.  Same with the mortgage example.  Smarter credit decisions and evaluation is a GREAT thing.  Creditors want to lend/approve as many people as they can.  They just can’t lend to/approve people that won’t pay them back!

Different Credit Scores: Good with the Bad

Too many people only notice when a different score hurts them.  They may pull a credit score on www.creditkarma.com and then their auto lender pulls a lower score and then declines them for a new home loan.  The real truth is that this person likely saw a score based on a FICO 8 algorithm on creditkarma.com while the mortgage lender was likely using a FICO 2, 4 or 5.   While they were declined for a home loan, they should remember that the auto loan they got last year and the credit cards obtain over the past few years were all likely based on a FICO 8 algorithm.  Flip this scenario around into a scenario where all creditors used one undifferentiated FICO algorithm.  This person may not have gotten approved for anything – no car, no credit cards.  We should all be cheering on advances in FICO score algorithms!

Smarter credit score algorithms are good for everyone!

By Jeremy House

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Jeremy is the Founder of The HOUSE Team and a Sr. Loan Officer/Branch Manager with PrimeLending. Over the past several years he has ranked in the top 1% of all loan officers nationwide and one of the top 200 loan officers in America. In the mortgage industry, the devil is in the details. Jeremy prides himself on being a student and an expert when it comes to everything mortgage related.

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