Did you recently try applying for a mortgage or another loan after you looked up your credit score using the free tool provided by Credit Karma?
Perhaps you faced an unwelcome surprise. The lender might have turned you down or offered you a lower rate than you’d projected.
There is a specific explanation for why this happens—and you are not the only borrower to have this experience.
Let’s find out why the credit score that was pulled while processing your application for a mortgage was lower than the score Credit Karma pulled up online.
Credit Karma Shows You Your VantageScore, Not Your FICO Score
As CNBC explains, “Consumers tweeted about going to apply for a credit card or loan thinking they have good or excellent credit, only to soon find that the credit score that the card issuer or lender pulled was lower than what they saw on Credit Karma.”
Here is what is going on here. Credit Karma pulled up your VantageScore credit score. But the lender pulled up your FICO credit score.
Most customers know they have a FICO score, but many do not know they also have a VantageScore credit score as well as other credit scores.
FICO Scores: How They Work
Let’s take a look at the differences between these two credit score models, starting with your FICO score.
FICO score calculations apply the following weights to financial factors:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
Depending on your financial health, your score could be in any of these ranges:
- Exceptional: 800+
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 579 and below
For most lending applications, your FICO score is what counts, not your VantageScore.
Vantage Scores: How They Work
For VantageScore credit scores, we are not given an exact formula with percentages, only the following approximations:
- Payment history: extremely influential
- Age and type of credit: highly influential
- Percentage of credit limit used: highly influential
- Total balances and debt: moderately influential
- Recent credit behavior and inquiries: less influential
- Available credit: less influential
Based on the calculations, your score could be:
- Excellent: 750 to 850
- Good: 700 to 749
- Fair: 640 to 699
- Needs work: 300 to 639
Even though your VantageScore is important for some purposes, when you apply for a mortgage, it is ultimately irrelevant. Your FICO score will determine your loan eligibility, not your VantageScore.
You Won’t Know What to Expect Without Checking Your FICO Score
By checking your VantageScore regularly on Credit Karma, you can make some basic observations. You can track improvements in your score and declines. You also should be able to tell whether your credit is generally healthy or otherwise.
But will you have sufficient information to correctly guess your FICO score before you fill out a mortgage application? Unfortunately, no.
Judging from borrower feedback, there is a significant chance your VantageScore is high in comparison to your FICO score.
It is easy to overestimate how competitive your FICO score is as a result, and hard to gauge the impact of a lower score on your loan application.
Here is what can happen if you fill out that application without checking what your FICO score is first:
- You may not qualify for the low interest rate you wanted. So, if you move forward at this time, your mortgage could cost more than you planned, and/or you will need to make a higher down payment.
- Your application for a mortgage could be denied.
- A hard check on your record could lower your credit score temporarily.
Looking up your FICO score in advance allows you to:
- Better manage the timing of your loan application, only submitting it when you are truly ready.
- Take steps to proactively raise your credit score before you submit your application, if necessary.
- Take other steps as needed to offset the impact of a lower-than-expected score on your borrower profile.
How to check your FICO score;
- Pay Experian, Equifax or TransUnion to show you your FICO score.
- Try Discover Credit Scorecard (it is free, and you do not have to use Discover).
- Contact your credit union, bank, or credit card provider. Ask if they can show you your score at no cost.
First Residential Mortgage Can Answer Your Credit Score Questions
The differences between FICO and VantageScores might confuse you at first. That is okay—a lot of borrowers have questions about their credit scores.
First Residential Mortgage has the answers you need to understand credit scores, improve yours, and enhance your borrower profile in preparation to submit a home loan application. Please call (540) 838-5868 now.
