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Know the Score

Crystal Flores

IF YOU’RE IN THE market for a home and a mortgage, this is a tough time, with shrinking inventory, lofty home prices and interest rates that feel overwhelming. I know all about this—because I’m a mortgage broker.

For many, today’s housing and mortgage market mean putting their homebuying dreams on hold. What if you go ahead, despite 30-year fixed-rate mortgages above 7%? I advocate controlling what you can. One of the variables that you can influence—and which can help save a tremendous amount of money—is your credit score.

Below are the six things I wish clients understood about their credit score when it comes to mortgage lending:

1. You don’t have one credit score. You don’t have three credit scores. Instead, you have multiple credit scores. Experian, Equifax and TransUnion are the three main repositories of consumer credit data. These are the folks to whom your creditors send monthly data about credit usage, late payments and so on.

VantageScore and FICO are the two main owners of consumer credit algorithms, and both companies have multiple scoring models. VantageScore is often used by consumer credit-monitoring services. Those scores will not be the same as the scores used by your mortgage lender. If I had a dollar for every time clients were shocked that their mortgage score was lower than what they thought it would be, well, I wouldn’t be retiring, but I’d be making some large donations to charity.

Mortgage lenders use FICO score models Nos. 2, 4 and 5. If your consumer reporting service tells you that your score is 750, be prepared: Your FICO score used in mortgage lending will likely be much lower due to the different scoring algorithm used. This discrepancy has huge consequences for borrowers. As I write this article, below is how rates compare for various credit scores.

2. The mortgage industry is in the process of adopting an entirely new FICO model. It’s known as FICO 10T and it’ll give trended data. Think of it this way: The current FICO models are like a static picture on Instagram, but the new trended data model will show a lender a short video, similar to a TikTok video. It’s predicted that these models will better reflect consumer behavior, so—if you have anything to clear up on your credit report—it’s important to start now. These models are set to be the industry standard by 2025.

3. It’s crucial to know your scores before starting the mortgage process. The best way for consumers to do this is to head to myFICO.com (no endorsement deal here), choose the “advanced” service and pay roughly $30. This’ll give you a full credit report. You will have to sign up for a monthly subscription plan, but just set a reminder in your calendar to cancel the subscription before the end of the following week.

This report will provide the detailed scores used in auto, mortgage and credit card lending. Fear not: There’s no negative impact on your credit score if you check your own score. You can also get a free copy of your credit report at AnnualCreditReport.com, but this will only give you the data reported on your credit report. It won’t provide any scores based on that data.

4. When underwriting your loan, lenders will use the median score. That means we line up your three scores in order from lowest to highest, and choose the score in the middle. That effectively means you can have one bad grade from one credit reporting service without risking your entire mortgage pricing.

If your loan has two legal borrowers, such as two spouses or two partners, we’ll use the lower of the two median scores for mortgage lending purposes. Result: It can sometimes be advantageous to remove one borrower from the loan, though this also means that the spouse with the lower score won’t receive the credit-score benefit of making regular mortgage payments. What if you need both your salaries to qualify for a mortgage? You need to know who has the lower FICO score and then work to improve that person’s credit.

5. Having a mortgage lender run your credit won’t greatly affect your score. For most clients, it’ll mean a five-to-eight-point drop. Once a mortgage lender runs your credit, you have 14 days to safely shop for mortgages and apply to as many lenders as you like without any impact on your credit score. The consumer credit-reporting agencies have a policy that you won’t be penalized for shopping for similar types of credit within a limited time frame. They get that you’re trying to find the best possible deal.

6. For the sake of your own sanity, take steps to limit spam emails and calls. Register with OptOutPrescreen.com and DoNotCall.gov. Many mortgage companies buy “trigger” leads, so once you apply with one mortgage lender, the notification that that inquiry has been made gets sent to companies who pay for that data, and you’ll be fighting spam calls and emails if you haven’t registered with these two websites. Clients have reported being bombarded with as many as 45 calls in a 24-hour period.

There are countless articles about what you can do to raise your score, but here’s what I recommend: Keep it simple. Don’t get in a lot of debt. When you do use debt, do so responsibly. Despite common advice to use multiple different types of credit, I personally only have one debt: a single credit card that I pay in full every month. If I were getting a mortgage, my credit score would be 803. Once a year, I buy a credit report from myFICO.com, and check my scores and the data used in generating my score. I make sure everything looks good—and then I get on with my life.

Crystal Flores is a mortgage broker in Texas. She’s a graduate of Dartmouth’s Tuck School of Business and has advised clients on debt since 2004. In her spare time, she tends to her three horses, four chickens, three miniature goats, three cats and a dog. Going to the feed store—and using her sole credit card there—is one of her major pastimes.

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