Which Credit Score Counts

 In Common Questions, Qualifying for a Mortgage

Many people receive credit score updates from their banks, credit card companies, etc., and the scores are often different.  Which one of your credit scores counts when you are applying for a mortgage?

Here’s what you need to know about your different credit scores.

There are three main credit bureaus: TransUnion, Equifax, and Experian.  All three companies collect information about consumers, and then they assign you a credit score based on a formula they have developed.  Those scores are used by mortgage lenders to determine your interest rate when you get a mortgage.

There are many different credit scoring formulas (known as scoring models), and the scores you get from each credit bureau will almost always be different because they all have different scoring models.

To make it even more complicated, the scores you receive from your bank, credit card companies, etc., are not typically the ones used by mortgage lenders.  The range of potential scores used in the scoring models used by mortgage lenders is from 350-850. Sometimes, different scoring models have different ranges (often going up to 950 instead of 850), and it becomes confusing when your scores are lower than expected when a lender pulls your credit.  

The main thing to remember is that the scores you get for free (or for a fee) from banks, credit card companies, etc. may not be accurate.  

Tri-Merge Credit Report

When a mortgage lender pulls your credit, we receive what is known as a tri-merge credit report.  This means that all three scores (one each from TransUnion, Equifax, and Experian) are all on the same report.  The score that is used to determine your interest rate is the middle score. For example, if you have a 685 score from TransUnion, a 700 score from Equifax, and a 720 score from Experian, we would use the middle score of 700 to determine your interest rate.

When more than one person is applying for a loan, we use the lower of the middle scores.  If one applicant’s middle score is 700 and the other applicant’s middle score is 750, we have to use the lower of the two middle scores, which would be the 700.

Raising Your Credit Score

We have software that tells us what you can do to raise your credit scores, and we always recommend that someone applies for a mortgage as soon as they think they will be buying a house.  If your scores are low, we can tell you what to do to raise them, and we can tell you how many points you will get if you follow the instructions we give you. It is often very easy to raise your scores, but it can be a huge waste of your time if you try to guess what you should do.  A lot of the information about credit scores that you find online is incorrect. Sometimes the advice you might receive online is the exact opposite of what you should be doing, and your scores will actually go down if you follow it.

The most effective way to raise your scores is to talk to a reputable lender who knows about credit scoring.  If you have any questions about your credit scores, contact us and we will be happy to help you raise your scores.

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