Is Your Mortgage Credit Score Right?

If you’ve thought about financing or refinancing a home then you know the value of a solid credit score. The better the score the lower your mortgage rate. Unfortunately, the government says that after looking at 200,000 credit files it found one out of every five credit scores purchased by consumers actually differed from the scores used by mortgage lenders.

According to the Consumer Financial Protection Bureau (CFPB), credit scores that are “meaningful different” can lead to several major borrowing problems.

First, you may not get the loan you expect. When you hear about the latest mortgage rates and how they are at or near historic lows, the presumption is that these are pretty much the rates you will be getting if you finance or refinance with an FHA mortgage, conventional loan or VA mortgage. But if the credit score you have bought somewhere is not the same as the lender’s then there is a very good possibility that the best mortgage rates will not be available to you.

“A meaningful difference,“ said the Bureau, “means that the consumer would be likely to qualify for different credit offers – either better or worse — than they would expect to get based on the score they purchased.”

Second, the bureau says that “score discrepancies may generate consumer harm” That’s a polite way of saying you might waste your time applying for a loan for which you do not qualify or get financing offers that are not as good as the credit offers you should be receiving.

Third, there’s no way to know in advance if your score differs from the scores used by lenders. As the Bureau explains, “consumers cannot exclusively rely on the credit score they receive to understand how lenders will view their creditworthiness.”

Mortgage Loan Applications

The bottom line is that it’s possible to have several credit scores. All may be “right” according to how they are calculated but the one you buy may be different than the one used by lenders. In a sense, then, a different credit score is “wrong” or at least useless.

Our recent experience refinancing appears to be very different than the experience reported by the Consumer Bureau. Knowing that we pay bills in full and on time — and knowing that we have no foreclosures, short sales or REOs in our history — we roughly estimated that our credit would be sufficient to get the best available rate. It was. No less interesting, as part of the application process the lender automatically and without cost supplied copies of the credit scores used for my wife and myself.

The Internet and cable television are filled with ads telling people they can get “free” credit scores when in fact such offers usually require the purchase of some related service. A huge exception is AnnualCreditReport.com, a site where reports are available without cost from the three major credit reporting agencies – TransUnion, Equifax, and Experian.

Notice that credit “reports” are available from the site without cost but not credit “scores.” In other words, reports and scores are two different financial reporting products, but if you have a credit report that’s free of dings and red marks then you pretty much know your credit score is solid. In that case there’s little sense buying a credit score from somebody when the credit score used by your lender could be different.

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