If you’re an aspiring homeowner, you may want to check your credit score before you apply for a mortgage. Reviewing your credit score can help you determine whether or not you should take steps to improve it before starting your home search.
While checking your credit score is a smart move, you won’t necessarily see the same number as your mortgage lender will during your loan application. That’s because consumer credit scores and mortgage credit scores are calculated differently.
So, what’s the difference between consumer credit scores vs. mortgage credit scores? Below, we’ll examine their differences in detail. We’ll also provide some tips to protect your credit score from identity theft.
How Many Credit Scores Do You Have?
To many consumers’ surprise, you don’t just have one credit score. Instead, you have hundreds of potential credit scores at any given time. Your credit scores will differ depending on the:
- Credit report used during their calculation – Credit scores are calculated using the information contained within your credit reports. You have a credit report from each of the major credit bureaus (Equifax, Experian, and TransUnion). Each of these credit reports may differ slightly, since they receive information from your lenders at different times.
- Credit scoring model – Another crucial factor is the credit scoring model used to calculate your credit score. FICO and VantageScore are the most popular credit scoring models used in the United States.[i] There are several versions of these two credit scoring models, as well as hundreds of others from additional companies.[ii]Each credit scoring model weighs various aspects of your credit activity slightly differently. Lenders typically use product-specific credit scoring models. As a result, your lender may use a different credit scoring model for your mortgage application than they use for your auto loan or credit card application.
What is a Consumer Credit Score?
Consumer credit scores, also known as educational credit scores, are credit scores that can be accessed by consumers.
Typically, consumer credit scores only use information from one of the credit bureaus. Additionally, they’re calculated using consumer scoring models, rather than mortgage credit scoring models.
Vantage 3.0 is the most common credit scoring model used for educational purposes. With this credit scoring model, your credit activity is weighed according to the following percentages:[iii]
- 40% – Payment history
- 21% – Age and type of credit accounts
- 20% – Credit utilization
- 11% – Account balances
- 5% – Recent credit applications
- 3% – Available credit
How to Check Your Consumer Credit Score
You can check your consumer credit score using the following methods:
- Visit a free credit scoring website – Websites, such as Credit Karma, allow you to check your consumer credit score for free.
- Ask your current creditor – If you already have an active credit card account or loan, you may be able to review your consumer credit score within your lender’s online account. Some lenders may list your consumer credit score within your monthly statement, as well.
- Enroll in credit counseling – Nonprofit credit counselors can pull your consumer credit score for you. Better yet, they can explain the factors that may be dragging down your credit score so you can take the right steps to improve it.
- Sign up for consumer protection services with one of the credit bureaus – The credit bureaus can share access to your consumer credit score if you sign up for one of their consumer protection services. Just keep in mind that Experian only shows FICO 8 credit scores, while TransUnion only shows VantageScores. Equifax has not publicly shared which version of credit scores they share with consumers.
Checking your credit score using these methods can help you assess your current creditworthiness. If you notice that your credit score is on the lower side, you may want to work on increasing it before applying for any loan products. After all, your credit score is a key factor in determining your eligibility and interest rate.
What is a Mortgage Credit Score?
Mortgage credit scores are only used to assess your creditworthiness for mortgage loans. Mortgage lenders use these product-specific credit scores because they’re dealing with very unique loan products—mortgages can have principal amounts of hundreds of thousands of dollars and often take decades to pay off. Thus, repaying a mortgage responsibly often requires different skills than managing a credit card or small personal loan.
Mortgage lenders typically look at FICO scores during their underwriting process. FICO credit scores weigh the following information according to these percentages:[iv]
- 35% – Payment history
- 30% – Credit utilization
- 15% – Length of credit history
- 10% – Credit mix
- 10% – New credit inquiries
As you can see, these percentages differ notably from VantageScore 3.0.
What Specific Credit Scoring Models Do Mortgage Lenders Use?
The FICO credit scoring model has several versions, each of which differs slightly. Currently, the most commonly used mortgage credit scoring models from each of the credit bureaus are as follows:[v]
- FICO Score 2 (which uses data from Experian credit reports)
- FICO Score 4 (which uses data from TransUnion credit reports)
- FICO Score 5 (which uses data from Equifax credit reports)
Compared to consumer credit scoring models, these mortgage credit scoring models are often more strict to account for the large sums of money involved.
What Are Tri-Merge Credit Scores?
Since there are multiple mortgage credit scoring models, you can have several different mortgage credit scores at any given time. Many mortgage lenders order tri-merge credit reports for this reason. Tri-merge credit reports include your credit report and mortgage credit score from all three credit bureaus.
While lenders use information from all three credit reports during their decision-making process, they only use one credit score. Typically, they’ll select your median credit score, rather than your highest or lowest. For example, let’s say your mortgage credit scores are as follows:
- Experian – 720
- Equifax – 690
- TransUnion – 700
In this case, your mortgage lender would base your loan terms on your credit score of 700 from TransUnion. The only exception would be if two of your mortgage credit scores are the same. In this case, your lender would select the duplicate score.
If you apply for a mortgage with a spouse or significant other, your lender will use the lower of your two middle credit scores.
What Should You Focus On As a Consumer?
Due to the differences between consumer credit scores and mortgage credit scores, there’s a good chance that yours will differ (potentially quite substantially). Unfortunately, there’s no way to know just how much your consumer credit score varies from your mortgage credit score until you undergo a formal credit check with your mortgage lender.
With that in mind, the most productive thing you can do is focus on the quality of the information listed in your credit reports. You can optimize this information by practicing responsible credit management habits, such as:
- Making all of your credit payments on time
- Paying any late or missed payments as soon as possible
- Paying off any credit accounts that have gone to collections
- Maintaining low balances on your credit cards
- Keeping old credit card accounts open, even if you aren’t actively using them
- Avoiding unnecessary credit applications
- Reviewing your credit reports regularly and disputing errors with the credit bureaus
By following these guidelines, you can make sure your credit reports contain positive credit activity. When you have plenty of positive credit activity, you can earn a high credit score, no matter which credit report or credit scoring model your lender uses.
How to Protect Your Credit Against Identity Theft
If you notice an error on your credit report, it may be due to identity theft. To protect your credit, it’s important to dispute such errors right away. You can do so by contacting the associated credit bureau and creditor. During your dispute, you can explain why you believe the information is incorrect and provide documentation to back up your claims.
Unfortunately, identity thieves often target children because they know that their credit reports are more likely to be overlooked, potentially for many years. You can safeguard your children’s credit reports by contacting the credit bureaus and letting them know that your child is still a minor. To do so, simply fill out the Federal Trade Commission’s Uniform Minor’s Status Declaration Form and send it to each of the credit bureaus.
To prevent additional instances of fraud, you can also freeze your and/or your children’s credit reports. To learn more about credit freezes, check out our in-depth article about them here.
Certified Credit: Your Trusted Credit Expert
If you want to learn more about credit, visit the Certified Credit blog. There, we discuss many credit-related topics that may be of interest to credit consumers and mortgage lenders alike.If you’re a mortgage lender searching for affordable credit reports or innovative mortgage lending solutions, you can also schedule a credit consultation with our team today.
[i] Forbes. FICO Vs. VantageScore Credit Scores: What’s The Difference?
[ii] Debt.org. What is a Credit Score & How is it Calculated?
[iii] Forbes. What Is A VantageScore?
[iv] FICO. FICO® Score Education.
[v] FICO. FICO® Scores Versions.