Credit Report Differences

Why Does My Mortgage Broker Have a Different Credit Score than Me?

Why is the credit score the mortgage company receives different than the FICO score you get?

You think you’ve gotten yourself all set as “Credit Karma” says you are good to go. You made sure your credit report is in order. When you sit down in the mortgage loan office you are surprised by the number they have versus the number you have researched. So what is this main disparity?

The credit report that mortgage companies use, which is called a tri-merged report, is actually a merge of three different credit reports. Each credit bureau uses different scoring models to generate the actual score. This then results in three distinct scores that are generated.

Why Do Mortgage Companies Combine Three Scores?

The three major credit reporting companies are Experian, Trans Union, and Equifax. While all three companies are doing the same thing, there are differences in the way each functions and each may use slightly different scoring models. Thus each credit bureau might get a slightly different score than the other. In some cases these scores might be different by 50 - 75 points.

What is The Logic Behind Using The Middle Score?

Most consumers feel it is unfair or unjust to look at just one score. Like the judges at the Olympics, the lowest and highest scores get thrown out. Using the middle score makes the process more just for the borrower. Lenders must have verifiable statistics that predict the potential of timely payment. Previous research supports the use of credit scores. The AARP Public Policy institute did a study and found an unmistakable and direct correlation between mortgage delinquency and credit scores. An example they found was that those borrowers with credit scores between 550 and 599 had delinquency rates over 50%. Conversely, homeowners with a credit score between 700 and 749 recorded delinquencies of only 5%. So using a middle score offers lenders the comfort and benefit of using verified statistics that will predict the probability of timely payment.

The Other Factors to Take Into Account

While lenders usually take the middle score of all three credit bureaus, the result you get when ordering your credit report might still be different than the score a lender will use. What is the discrepancy? If you apply for a joint mortgage, lenders could be evaluating as many as 6 different credit scores (three for each person). While the person with the highest credit score is usually considered the primary borrower, lending agencies often take the lowest middle credit score of both borrowers as their benchmark. Also the time it takes for you, the consumer, to receive a credit report might differ in relation to how long it takes a lender to receive one. During this time difference, your credit score might change.

Yes, all of the credit score and middle score statistics can be confusing for the borrower. This is why we recommend working with a reputable mortgage broker to discuss your credit-worthiness and next steps. Mortgage Options, Inc. is experienced and knowledgeable about getting a favorable outcome to your loan application.

If you would like to apply for a mortgage contact us at Mortgage Options, Inc. today!