Myth #4: Credit Scores don’t drop when LOs do credit checks while I am shopping around for a mortgage
Contrary to the popular belief, your credit score can drop as more and more LO’s pull your credit as you are shopping around for your mortgage.
If you, as a consumer, use a company like Credit Karma to pull your credit score, the number you see may differ from the FICO score that your Loan Officer pulls. This can be very confusing for borrowers who expect to see numbers that are exactly the same. In order to understand why this is, it is important to note that credit reports pulled by consumers are supplied by a different system than the reports pulled by lenders. Consumer scores are reported by a system called Vantage, while loan officers pull reports directly from FICO.
The Vantage system was developed with the goal of empowering consumers by providing them with unhindered access to their credit scores. An added benefit is that the Vantage system approaches credit scoring in a way that is superior to FICO scoring, which is out of date. However, the two scoring systems do not calculate scores in the same way. Different formulas for determining creditworthiness equates to different overall scores.
A variety of reasons explain the existence of this issue – ranging from the secondary market, a monopoly within the credit scoring industry, and well-intended but constrictive rules and regulations. While these are all issues that need to be addressed, in the meantime consumers must focus on not getting caught up in exact scores. If you have good credit, you may score 745 with one system and 780 with the other. In this instance, your credit is good enough that there is no need to fixate on the exact number.
However, if you have a score of 620, as opposed to 640, then you are likely to run into issues as a credit consumer. This is because, in the mortgage business, 640 is the minimum score for getting you a seat at the table. However, it is important to keep in mind that this score is not ideal for seeking a loan, and is likely to land you some of the worst possible pricing.
Therefore, prior to seeking a loan, you should set a goal of a credit score at 740 or above. This will help you to get the best possible pricing on your loan. Because a mortgage is the largest financial transactions you will ever make, it is imperative that you not allow bad credit to ruin it.