Surprise! Your Free Credit Score Isn’t the One Your Mortgage Lender Will Use

December 7, 2017

Nearly everyone has access to free credit scores today. But one of the big surprises is that the free credit score you’ve been tracking isn’t the one that your mortgage lender will use. That isn’t some sort of glitch in the system. There are a number of reasons why your free credit score and the one pulled by your mortgage lender aren’t the same number.

You Don’t Have Just One Credit Score

People talk about their credit score as if it’s a single number. But unknown to most, there are actually many different credit scores. FICO is the credit score category used by most lenders – in fact, 90% of lenders use FICO scores by at least one count.

But you also have more than one FICO score. There are actually 49 different versions of your FICO score alone.

How can you know which credit score a particular lender will use? As a matter of general information, you can’t. The best way to find out is to ask the lender before you apply for a loan. Some may not provide that information, but it’s always worth it to ask.

But even if you know which score they’re going to use, you probably won’t have access to it through a free credit score program. There are simply too many different credit scores, and it can be almost impossible to locate a credit score provider who will use the exact score that you need.

What’s more, the specific score used by one lender almost certainly won’t be the one used by another. Different industries use different scores. For example, there may be a credit score family for auto lenders, another for credit card companies, and still another for mortgage lenders. It’s impossible to be able to keep track of them all.

Free Credit Scores are Everywhere – Which Ones Count

These days, it seems that free credit scores can be had almost anywhere. There are specific credit score providers, such as Credit Sesame, but scores are now being offered by a wide variety of other businesses. These can include banks, credit card companies, tax preparation software companies, and even sources that have nothing to do with finance.

CreditSesame

Unless you are receiving your free credit score from a bank or a credit union, you’re probably not getting a “real” score – the type lenders use. And even with banks and credit unions, the free score offered may not be the one they use for lending purposes. It’s even possible that they will use different scores for different loan types.

The free credit scores used are often what are known as Vantage scores. These are parallel credit scores that are widely available but are used by only a relatively small number of lenders. They use a similar methodology to FICO scores, but they aren’t an exact match.

They are often referred to as educational scores since the primary use at this point is to inform consumers about the state of their credit. In many circles, they’re also referred to as FAKO scores, which is a blend of words “FICO” and “fake”.

Free credit score suppliers will give out Vantage scores because they can obtain them for free. FICO scores cost money to obtain, and a score provider could go broke providing them to everyone on a monthly basis.

But that doesn’t mean that the educational scores have no value. They may not be FICO scores, but they track your credit all the same. They will let you know the approximate level of your FICO score, as well as whether or not there any credit issues that you need to fix. They are great services, and you should probably be subscribed to one for awareness and education, but it’s important to not bank on the score itself.

Why is My Free Credit Score so Different from the One the Lender Pulled?

It’s not uncommon for free credit scores to differ from lender pulled FICO scores by anywhere from 10 to 50 points. But this is also true between the different FICO scores.

There are a number of reasons why this happens:

  • Timing – if you had a late payment last week, it may be reflected in one score, but not the other. It all depends on what the reporting dates are.
  • Unreported information. Not all lenders report to all credit bureaus. If you have a late payment with a lender who does not report to a certain credit bureau, another report pulled may show a very different score.
  • Slight variations in the calculation methodology between different credit scoring models. Two credit scoring models may pull information from the same database, but produce slightly different scores.

Which Credit Scores Do Mortgage Lenders Use?

Mortgage lenders use FICO scores in evaluating your credit. But the version that they use is specific to the mortgage industry. It gives more emphasis to your mortgage history than other types of credit.

According to myFICO.com, mortgage lenders use the following credit scores:

  • FICO® Score 5 based on Equifax data
  • FICO® Score 2 based on Experian data
  • FICO® Score 4 based on TransUnion data

Notice that each of these scores are an actual FICO score. The fact that there are three of them is due to the fact that each is unique to one of the three major credit bureaus – Equifax, Experian and TransUnion.

While there might be slight variations in how each FICO version is calculated, they use essentially the same algorithm. When there are major differences between the scores, it’s usually due to reporting. For example, a creditor may report to Equifax and TransUnion, but not Experian. If your payment history with that creditor is below average, your credit scores with Equifax and TransUnion will be lower than your Experian FICO score.

How to Access the Credit Score Used by Your Mortgage Lender

Since the FICO scores used by mortgage lenders are industry-specific, it’s unlikely that you will be able to track that score on your own. Even if you could, it certainly wouldn’t be free.

If you’re planning to apply for a mortgage, the best way to stay on top of your credit score is to make application for a mortgage pre-approval from the lender you plan to use to finance your new home. Because the pre-approval will be based on the actual score used by the lender, you can have full confidence that there won’t be any surprises during the process.

And when you do finally find the home of your dreams, you can know that your preapproval is based on your actual credit score, not the freebie you pulled off the web.

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