Debunking Credit Score Myths
3 False Beliefs You Need To Know Before You Buy A Home
Credit seems to be a mystery to most people. Not because it is hard to understand, but because there always seems to be so many “opinions” that vary and some conflicting information. Here is the truth behind three myths about credit:
Myth 1: My score is _______, according to the online company I checked with.
Your “consumer score” is not the same as your actual score. What this means is that the “score” you get from any of the many “free” online sources, while not wrong, is not necessarily the full story. If you read the fine print on any of those sites, they will tell you that the score they provide is a perspective on your overall score, not the specific score that a lender will see for your loan application. That said, if you have a very high score through the free source, you will generally have an overall good score through the lender review. There are exceptions, of course, but \if you look great on the free score, you’ll probably be OK for the full score.*
Myth 2: My credit score is 800, so I’ll get a better rate than someone with a 790.
First, refer to myth one: is your score actually 800? Let’s assume, for this myth-busting, that it is. While it is true that interest rates for loans in general, and specifically mortgages, will adjust for better or worse depending on the score, there is a cap. That cap is 740. For mortgage loans (excluding “jumbo” or “non-conforming” loans) a person with a 738 score will qualify for a slightly higher rate than a person with a 740, an 800 (or higher) score will qualify for the same rate as a person with a 740 score. So, there’s no “better than best” when it comes to credit score. Best… is best.
Myth 3: My spouse has a higher score than I do, so we’ll use theirs.
Credit, like water, looks for the lowest point. So, if you have a 670 score, and your spouse has a 720… you guessed it, your mortgage is going to be based on the 670. There are potentials to “work around” this, depending on income and debt balances, but generally, if you need both incomes to qualify for the loan, then the “low/mid score” (see below) is the one that will drive the loan, and the rates you will qualify for. So like all things in marriage, it’s about both of you.
However, you should also note that when we look at your credit for a mortgage, we look at three scores from three different repositories (companies that collect, update and “weigh” consumer credit information) and they are usually all at least slightly different. So we look at the middle number to guide the process. Meaning, neither the highest score nor the lowest score are what are considered, the middle ground is where the sweet spot is. That said, the higher all three are, the better. And, again, if you are married or applying with another person… the low middle score between the two of you is what will drive the process.
All of the information I have shared here is based on mortgage lending, other consumer credit may have different guidelines. You should always ask for details about how your credit score may be affecting any specific credit transaction you are considering. Finally, these are just three common myths about credit scores. Credit is a living and breathing thing. Please contact me with any specific questions you have about your personal credit. I would be happy to help!
Mark Pontz is a Licensed Mortgage Loan Officer
NMLS #33151, loanDepot
www.markpontz.com | mark@markpontz.com
*The score the lender pulls might differ from the one you used sometimes by several points, possibly enough to disqualify you from the best interest rate or maybe enough to have your application denied. When you order your credit report and score from myFICO, you'll receive access to the most widely used FICO industry scores. This will give the best idea of what the lender sees when they check your credit score.
