Trying to figure out what your actual mortgage credit scores are can be extremely frustrating. There are many places to “click” online to access your credit score, even for free. But how do you know which one to click? Which one has the right, or most accurate, credit score?
Here is what’s important to know. Companies like Credit Karma are not using the same scoring model that mortgage lenders use. Credit Karma (and its competitor Credit Sesame) use a scoring model called VantageScore. Credit card companies and installment loan creditors commonly use this score. Nearly all auto loan and mortgage lenders use the more widely known FICO score. The main difference between the two is the weight that they give credit utilization.
If that wasn’t confusing enough, there are 10 different FICO versions! Each of those have two to three more versions depending on what type of lender is using it. So, what do you do?
Focus on the range of your score more than the score itself
All credit scoring models are similar, but the exact score will almost always be different than your mortgage credit scores. Instead of focusing on the score, pay more attention to the range. Mid to high 700’s is great!! Low to mid 700’s is good! Mid to high 600’s is Ok. And below mid 600’s has some room for improvement.
Don’t max out your credit cards
Know what your credit utilization is and where to keep your balances. Credit utilization is just a long way of saying the percentage of your balance compared to your available limit. For example, if you have a card with a $6,000 credit limit that has a $3,000 balance, that’s a 50% credit utilization. If you can keep your balances below 30% (good) or even below 10% (best), this shows creditors that you can use credit responsibly. The better the utilization percentage, the more responsible you appear, so you’re given a better score.
Make your payments on time
Creditors want to know that they will be paid back by the borrower. The more consistent the pay history, the better the score. Keep in mind, a late payment is not recorded to the credit bureaus until it is 30 days past due. However, even a few days past the due date can cause the creditor to charge a fee, lower the limit, or increase the interest rate.
Limit the times you apply for new credit
Multiple credit pulls by different lenders can have a negative impact on your score. However, consumer protection laws require that multiple credit applications only be considered as one, so that a score isn’t affected by comparison shopping. The credit bureaus state that this needs to be within 15 to 45 days to only reflect as one pull, as long as it is the same creditor type. If you go apply with different lenders for a boat, a credit card, and a car, they will all count as different inquiries regardless of the timeframe.
Don’t open new accounts at the same time
Your debt–to–income ratio (DTI), not the amount of debt you have, is what lenders look at. Adding a new account, or new debt, will also add a new payment. If you are in the process of buying a home or a car, or opening a new credit account, this could affect your DTI and your mortgage credit scores. And these things could affect your approval on other accounts you’re trying to open.
Talk it over with a mortgage advisor
An expert advisor like the ones at Your BREW Team can help you create the best strategy for your specific situation. Everyone has different financial goals, and a mortgage advisor can guide you through which order to address certain items on your credit report and which debts are good to have. They can also help you avoid these common mistakes.
Maintain good credit scores to show that you use debt wisely. It will help you get the best mortgage loan terms, so that you can Build Real Estate Wealth!