Buying your first home is a daunting milestone in everyone’s life and can bring both joy and anxiety when beginning the process. One large source of anxiety comes from the ever looming need of an exceptional credit score to aquire acceptable rates. For those that meet this criteria as displayed by your credit monitoring service; you may be surprised to know that everything may not be as it seems!
When Jennifer Bingham began house hunting back in 2019, she felt confident that her 740 credit score would secure her dream home when she came across it with an admirable interest rate. As Jennifer began the preapproval process, she was shaken when her bank disclosed that her mortgage credit score was only 700! This score still situated Jennifer in a good credit range, but was unable to get her the rates that she had originally imagined.
This exact situation happens to many first time home buyers when they find out that they have a mortgage credit score -often showing to be much lower than their primary score. Consumers have many different credit scores that they are unaware of with the mortgage credit score being only one of them! The difficulty lies with the the fact that it is difficult to view their mortgage credit score unlike their FICO 9 with help of credit information applications. It is not impossible however to track and build your mortgage credit score, but it is important to first understand why there is a gap between your regular credit score and your mortgage credit score.
Why is it Different?
A mortgage score, unlike most other credit scores, is based on a formula that hasn’t changed in over 20 years! This is because Fannie Mae and Freddie Mac state these loans must be underwritten to be underwritten based on the FICO formula. Though there have been efforts to make changes to the mortgage credit score, the process has yet to see results.
The issue with the old formula comes down the the way it reports. Unlike the more consumer friendly formulas of other credit scores, the old formula may report lower scores for its consumers. Medical debt is one example of an item that is no longer counted toward newer fico scores, but is still taken into account when it comes to the mortgage formula. The same goes for collection debts that have been paid. These paid debs are not counted in the newer formulas, but hold weight when it falls to the classic FICO formula.
Mortgage credit scores are also more difficult to improve than their FICO 9 counterpart. While other FICO formulas have tools like Experian Boost to help to being building credit or supplement thin credit profiles, mortgage credit does not take these tools into consideration when reporting. With theses reporting differences between reports, it is not unlikely that there will be a discrepancy of 20 or so points between the two scores.
Another major difference that can be found within your mortgage credit score is the “shopping period allowed.” Newer formulas allow for a 45 day window where multiple credit requests made by lenders will only count as one inquiry. With your mortgage score, that window is only 14 days, meaning more inquiries that will impact your score.
Recently, the Federal Housing Finance Administration (FHFA) has announced that it would consider alternative credit score formulas when it came to mortgages. Sadly, until the consideration leads to action, the old formula will remain in use.
How To Improve Your Mortgage Score
The first step to improving your mortgage score is to know what is listed on it by getting a copy. Sites like myFICO.com, though you will have to pay a monthly fee of about $20, will give you access to up to 28 different FICO scores! Another way to find your mortgage score would be to go to a lender and have them pull an informational credit check for pre approval from one of the bureaus!
The second step is to regularly review your credit report and identify errors when they arise. More than 70% of Americans have wrongful information on their credit reports that can be challenged for removal! You are legally entitled to one free copy of your report each year, but due to the pandemic, you can request weekly reports from all three bureaus until April 20, 2022!
Do you have questions about your credit report? If you would like to speak with one of our attorneys or credit advisors and complete a free consultation please give us a call at 1-800-994-3070 we would be happy to help.
If you are hoping to dispute and work on your credit report on your own, here is a link that provides you with a few ideas on how to go about DIY Credit Repair.
