One of the most common questions we hear from homebuyers is:
"My credit card company says my credit score is 790. Why is the mortgage credit report showing a lower score?"
The answer usually comes down to which credit scoring model is being used.
While both FICO® Scores and VantageScore® Scores are designed to predict credit risk, they are different scoring models that often produce different results. Understanding the difference can help you avoid surprises when applying for a mortgage.
Important Note: The credit score shown by your credit card company is often a VantageScore or other similar model, which may be significantly different from the mortgage credit scores used to qualify for a home loan. Always have a mortgage professional review your actual qualifying scores before making assumptions about your loan eligibility.
The FICO® Score is the credit scoring model that has been used by mortgage lenders for decades. It was developed by Fair Isaac Corporation and remains the most widely accepted scoring model in the mortgage industry.
When you apply for a mortgage, lenders typically pull credit reports from the three major credit bureaus:
Each bureau generates its own FICO score, and mortgage lenders generally use the middle score of the three for qualifying purposes.
The VantageScore® model was created jointly by the three major credit bureaus as an alternative to FICO.
Many credit card companies, banks, and personal finance apps provide consumers with free credit score monitoring using a VantageScore model. As a result, many borrowers assume that the score they see online is the same score their mortgage lender will use.
Unfortunately, that's often not the case.
It is very common for consumers to see a VantageScore that is higher than their mortgage FICO score.
At first glance, the VantageScore appears stronger. However, some mortgage programs that allow VantageScore qualification may apply qualifying adjustments when determining the score used for loan approval.
Using the example above:
Final Verdict:
Even though the VantageScore appears higher initially, the borrower would actually qualify with a higher score using the FICO model.
Your qualifying credit score can directly impact:
A difference of just a few points can sometimes move a borrower into a different pricing tier. That's why it's important to review all available credit scoring options and determine which model provides the strongest qualifying result.
This is probably the biggest source of confusion for borrowers. Many popular credit card companies and financial apps display a VantageScore because it's inexpensive to provide and updates frequently.
While these scores can be useful for monitoring trends and tracking your credit health, they are not always the same scores used during the mortgage approval process.
A single borrower may simultaneously see:
All of these numbers can be accurate because they are generated using different scoring models and calculations.
Your credit score is one of the most important factors in qualifying for a mortgage, but not all credit scores are created equal.
The score you see through your credit card company or banking app may be based on the VantageScore model, while your mortgage lender may use a FICO score or compare multiple scoring models to determine the best qualifying option.
At Contemporary Mortgage Services, we review your credit profile carefully and help determine which qualifying score provides the greatest benefit for your mortgage application. We also explain any differences between the scores you see online and the scores used during the mortgage process so there are no surprises along the way.
Whether you're buying your first home, refinancing, or simply curious about your mortgage qualifying score, we're here to help.
Contemporary Mortgage Services, Inc.
NMLS #205042
Serving Florida Homebuyers Since 1985
Busting Common Credit Myths: What You Need to Know
When it comes to credit, misinformation is everywhere—and believing the wrong things can hurt your financial health. As a mortgage broker, we know how important your credit is when it comes to securing a home loan. That’s why we’re here to clear up some of the most common credit myths and help you make informed decisions.
Myth #1: Checking Your Own Credit Hurts Your Score
Truth: Checking your own credit report is considered a soft inquiry and does not affect your credit score. In fact, regularly reviewing your credit is a smart habit. It helps you stay on top of your financial health, detect potential fraud early, and understand changes in your score. Staying informed is key to maintaining strong credit.
Myth #2: Closing Old Accounts Improves Your Credit
Truth: While closing an old account might help curb unnecessary spending, it doesn’t necessarily help your credit score. Credit history length is a factor in your score, and closing older accounts can shorten that history. Lenders like to see a long track record of responsible credit use—so think twice before closing that longstanding account.
Myth #3: Paying Off a Negative Record Removes It from Your Report
Truth: Paying off debts is always a good idea, but it doesn’t erase the past. Negative marks like late payments or collections typically stay on your credit report for up to seven years from the date of the first delinquency. Paying them off shows responsibility, but the record will still be visible for a while.
Myth #4: Credit Scores Change Randomly
Truth: Your credit score is based on the data in your credit report. If your score changes, something in your report has changed too. It could be a new account, a missed payment, a hard inquiry, or even a higher balance on a credit card. Reviewing your report can help you pinpoint the cause and take action if needed.
Myth #5: Quick Fixes Can Instantly Boost Your Score
Truth: There’s no magic trick to instantly improve your credit score. While actions like paying down high balances or correcting errors on your report can help, building strong credit takes time. Consistent, responsible financial behavior—like making payments on time and keeping balances low—is the most effective way to improve your score over the long term.
Final Thoughts:
Understanding how credit works is essential, especially when you're preparing to buy a home. Don’t let myths steer you off course. If you have questions about your credit or how it affects your mortgage options, we’re here to help.
Contact us today: 407-834-3377
How to Maintain a Stellar Credit Score
Navigating finances can be intricate, but when it comes to elevating and preserving your credit score, simplicity reigns supreme. Here are four essential strategies to uphold a strong credit profile:
1. Timely Bill Payments: Consistently paying bills punctually contributes positively to your credit score, enhancing it over time.
2. Borrow Wisely: Exercise prudence in borrowing only what you can comfortably repay. Strive to keep your credit utilization below 30% of your available credit. Consider establishing an emergency fund to mitigate the need to max out credit cards during financial strains.
3. Strategic Credit Applications: When seeking loans or credit cards, opt for quality over quantity. Applying for numerous store credit cards solely for discounts may raise red flags with lenders.
4. Regular Credit Monitoring: Stay vigilant by routinely checking your credit history across all three major bureaus—Equifax, Experian, and TransUnion. Utilize AnnualCreditReport.com for free credit reports every three months or annually to detect and rectify any inaccuracies promptly.
By adhering to these principles, you can safeguard and bolster your credit standing for a more secure financial future.
Contact us today to learn more!
407-834-3377
What are Credit Inquiries & How do They Affect my Credit?
Deciphering Credit Inquiries: What You Need to Know
In the world of credit reports, inquiries often mystify many of us. They appear seemingly out of nowhere, leaving us uncertain about their origin and duration. No, we’re not discussing unexpected visits from in-laws; it’s the inquiries on our credit reports that puzzle us. Understanding inquiries is crucial as they stand as one of the most perplexing and least grasped elements in the credit reporting system. Let’s dive into the details of inquiries and how you can effectively manage them:
What exactly are inquiries?
Inquiries signify instances when someone checks your credit information. They’re categorized into two types: ‘hard inquiries,’ which occur when a business reviews your credit report for credit application purposes, and ‘soft inquiries,’ which happen when your credit is checked for reasons other than credit applications, like pre-approved offers or account management. Applying for a new credit card triggers a hard inquiry, potentially causing a temporary dip in your credit score. Conversely, checking your own credit or when it’s checked for non-credit-related reasons won’t affect your credit score; these are considered soft inquiries.
Does checking my own credit impact my score?
No, checking your own credit doesn’t harm your credit score. You can review your credit data without worrying about negatively affecting your score.
Why are inquiries recorded?
Hard inquiries are logged to give potential creditors and lenders insight into your credit application frequency. Too many hard inquiries might signal that you’re attempting to borrow beyond your means. However, multiple inquiries for the same purpose within a short period are often consolidated into a single, less impactful inquiry session. Moreover, inquiries serve consumers by potentially alerting them to identity theft attempts when someone tries to open accounts in their name.
How long do inquiries last?
Most hard inquiries persist on your credit report for two years from their original placement. All inquiries, at minimum, remain visible for a year. While disputing inquiries is allowed, proving their inaccuracy can be challenging. If unsure about an inquiry, contacting the listed financial institution before disputing might provide clarity.
When it comes to securing a mortgage, every aspect of your credit history matters. Understanding the nuances of credit inquiries becomes particularly crucial in this context. Mortgage lenders carefully assess your credit report, including the frequency and nature of inquiries, to evaluate your financial responsibility and risk level. While inquiries are a necessary part of managing credit, being mindful of how they impact your report, especially when applying for a mortgage, can make a substantial difference. Keeping a vigilant eye on your credit health and minimizing unnecessary hard inquiries ensures you’re in a stronger position to secure the mortgage terms that align with your financial goals.
Info@contemporarymortgage.com
Credit History - How Long Deragatory Events Stay on your Credit
Are you eagerly anticipating the removal of old records like late payments, bankruptcies, and tax liens from your credit report? Taking charge of your credit health involves staying informed about the expiration dates of various records on your report.
For instance, identifying an outdated bankruptcy entry from, say, 2001, can significantly bolster your credit score once rectified. Delve into our guide below to supercharge your credit management strategy:
Bankruptcy
Different types of bankruptcy (Chapter 7, 11, and 13) typically linger on your credit report for 7 to 10 years following the filing date. Any accounts included in the bankruptcy filing should be labeled as “Included in BK” and will remain on your report for the same duration.
Charge-off Accounts
Accounts that have been charged off due to delinquency tend to stick around on your credit report for 7 years.
Closed Accounts
Delinquencies associated with closed accounts persist on your report for 7 years from the reporting date. However, positively closed accounts, devoid of any delinquencies or late payments, may remain on your credit report for a longer period.
Collection Accounts
Accounts forwarded to collections typically stay on your credit report for 7 years from the date of the last 180-day late payment on the original account. When paying off the full balance, the record will be annotated as “paid collection.” But if settling for a reduced amount, expect the record to reflect “paid for less than the total due.”
Inquiries
Whenever a creditor or lender conducts a credit check, resulting in a “hard inquiry,” it stays on your report for up to two years. Accumulation of these hard inquiries can marginally impact your credit score. However, harmless “soft inquiries,” such as those from employers or your own credit checks, don’t affect your score and remain unseen by businesses.
Judgments
Most judgments, including those from small claims, civil cases, and child support, typically remain on your credit report for 7 years from the filing date.
Late Payments
Delinquencies of 30 to 180 days due to late payments can linger on your credit report for 7 years.
Tax Liens
Unpaid city, county, state, and federal tax liens pose severe implications, potentially remaining indefinitely on your credit report. Once paid, these liens typically stay on your report for 7 years from the payment date.
Understanding the intricacies of your credit history isn’t merely about tidying up your financial past. It can play a pivotal role in securing significant financial milestones, like obtaining a mortgage. Lenders scrutinize credit reports to assess an applicant’s financial reliability and loan eligibility. By proactively managing and rectifying discrepancies or outdated entries on your credit report, you pave the way for a stronger credit profile. This, in turn, increases your chances of securing favorable mortgage terms and realizing your dream of homeownership. Taking charge of your credit history today sets the stage for a promising financial future tomorrow.
info@contemporarymortgage.com
The Crucial Role of Credit Scores in the Mortgage Process
When it comes to securing a mortgage, your credit score is often the unsung hero of the process. Many potential homebuyers underestimate just how important this three-digit number can be. In this article, we'll delve into the significance of credit scores in the mortgage process and why maintaining a healthy credit profile is vital to your homeownership dreams.
The Credit Score: Your Financial Report Card
Your credit score is a numerical representation of your creditworthiness, a report card that lenders use to assess the risk of lending to you. It reflects your credit history, including your payment history, the amount of debt you owe, the length of your credit history, new credit inquiries, and the types of credit you use.
Why Is Your Credit Score Important for Mortgages?
1. Interest Rates:
One of the most significant impacts of your credit score on your mortgage is the interest rate you'll be offered. Lenders typically offer lower interest rates to borrowers with higher credit scores. This means that with an excellent credit score, you can potentially save thousands of dollars over the life of your mortgage.
2. Loan Approval:
Lenders use your credit score to assess your creditworthiness. A low credit score can make it challenging to secure a mortgage. In contrast, a higher credit score improves your chances of an easier loan approval.
3. Down Payment Requirements:
A strong credit score can reduce the required down payment for some loan programs. In contrast, borrowers with lower credit scores may be required to make a larger down payment to mitigate risk for the lender.
4. Mortgage Insurance:
A lower credit score often results in the need for mortgage insurance. Mortgage insurance can add to your monthly mortgage costs, so maintaining a good credit score can help you avoid this expense.
Improving Your Credit Score for a Better Mortgage Deal
If your credit score isn't where you want it to be, there are steps you can take to improve it:
1. Check Your Credit Report: Review your credit report for errors and discrepancies. Dispute and rectify any inaccuracies you find. For more info on how to retrieve a copy of your free credit report, click here: How to Get Your Free Credit Report
2. Pay Bills on Time: Consistently paying your bills on time is the most significant factor in your credit score. Set up reminders or automatic payments to ensure you're never late.
3. Reduce Debt: Lowering your credit card balances can significantly improve your credit score. Aim to keep your credit utilization (the amount of credit you use relative to your total credit limit) below 30%.
4. Avoid Opening New Credit Accounts: Each new credit inquiry can temporarily lower your score. Avoid opening new credit accounts before applying for a mortgage.
5. Don't Close Old Accounts: The length of your credit history matters. Keep older, well-managed accounts open to demonstrate a longer credit history.
6. Seek Professional Guidance: If you're struggling to improve your credit score, consider working with a credit counseling agency or a financial advisor. Feel free to contact us if you would like a referral for one of these companies.
Conclusion
Your credit score is a critical factor in the mortgage process. It affects not only your eligibility for a loan but also the terms and conditions you'll be offered. Understanding the significance of your credit score and taking steps to maintain or improve it is a vital aspect of achieving your homeownership dreams. Start early, manage your credit responsibly, and consider seeking guidance if necessary to ensure your credit score works in your favor when it's time to secure a mortgage. Remember, the higher your score, the better your mortgage deal is likely to be.
If you have questions about your credit score, the mortgage application process, or any aspect of securing a mortgage, our team of experienced mortgage professionals is here to help. Feel free to contact us for more information and personalized guidance on your journey to homeownership. We're dedicated to assisting you in every step of the process.
For more information on credit scores, check out some of our other pages on the subject: