Why is your Mortgage Credit Score lower than your Free Credit Score?

We constantly see advertisements and commercials with catchy tunes, promoting a free credit report website or marketing feature. While these sites do give your credit scores for free or a close estimate, what does that particular score mean? How did they calculate that score? Why is it different than what the mortgage companies are telling you?

Free Credit Scores

Free Credit Report sites give you a rough estimate of your score, which will be 20-30 points higher than what a Mortgage company will give you. This is because they give you a generic credit score which covers a range of credit products. Essentially, these scores are provided to just give you a perspective on your credit standing using what is called the VantageScore. These scores will never be used by lenders to approve you for a home loan. Creditors and lenders use a mores specific formula custom to the type of product you are applying for.

Mortgage Company Credit Pulls

Mortgage lenders use what is called FICO scores, rather than VantageScore, to determine a borrowers creditworthiness. The FICO score will represent the borrowers ability to pay their bills on time. When Mortgage Companies pull your credit, they use 3 major credit bureaus which are Equifax, Experian, and Transunion. They will use all 3 bureaus in what is called a “trimerge credit report.” It combines the 3 reports into one, which makes it an easier file to review. Then they will use the middle score to determine your rate, not the average. For example, if your scores are 700, 701, and 800, the score they use will be the 701.

Home Purchase Preparation Advice

To sum it up, when you get your free credit report, all it does is give you a general idea of where you are as a borrower. Do not use this free score as an indication of your credit standing as it may only get our hopes up and let you down in the end. When a mortgage company pulls your credit for a home loan, your score will be lower. Until you have your credit pulled by your lender, you will not know your real score. The best thing you can do leading up to searching for homes is to carefully prepare. Save down payment money, do not take any new debt out, and make sure you are familiar with your credit history. Make sure you have no late payments or outstanding collections on your credit. Being prepared and knowledgeable of your situation is key before being pre-approved.