Why is my Mortgage Credit Score Lower Than my Free Credit Scores?

Maybe you paid for a credit score or maybe you got it for free.  But most find out that there is a big problem with these scores!  The fault in the credit scoring systems used is they do not match the mortgage credit score pulled by lenders.  If you’re thinking that this is unfair and wrong, you would be correct!  So let us clear up some of the credit scoring confusions.

Which Mortgage Credit Score do Lenders and Banks Use?mortgage credit score

Most know that there are 3 major credit bureau companies.  These 3 credit bureaus are Equifax, Experian, and Transunion.  So which ones do mortgage lenders use then?  Well, mortgage lenders use all 3 of them in what is called a “trimerge credit report”.  This means that all 3 credit bureau reports are merged into one, easier to review file.  Then, lenders will use the middle of the 3 scores for the actual mortgage credit score.  The interest rate qualification is based on this middle score.  Although, there are a couple exceptions to using 3 scores though:

  • If only 2 scores, can use the lower of the two
  • If only 1 score, sometimes can use the one score

Examples of Middle Credit Scores:

Remember, this is not the average of 3 scores.  It is the middle score.  So if your scores are 640, 641, 700, the middle score is 641.  If you only have 2 scores of 640 and 800, the score used will be 640.

“The interest rate is based on this middle score.”

There are some rare instances where a credit union or bank may use just one bureau.  These are typically companies that have their own products and do not underwrite to agency guidelines.

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What is a Good Mortgage Credit Score?

If you have read many of our articles on credit, you will see this saying “Everyone is a number, so you may as well have a good one”.  Credit scoring is used in much more than buying a home.  Actually it is used for insurance, auto loans, credit cards, and even jobs.  Of course if you can have over an 800 credit score, that is a great goal.  But typically for mortgage loans, a 760 score will get you the best interest rate.  Although government loans such as VA, USDA, and FHA could have credit scores in the mid 600’s at practically the same rate as a 740 score.

Conventional loans are more sensitive to credit scores.  So it would be more difficult for loan approval on a conventional loan compared to a government loan with scores in the 600’s.

Why is My Credit Score Different Than My Mortgage Credit Score?what is a good credit score

So, what is the reason you get a credit score of 680 from one place and then mortgage credit scores of 620?  Believe it or not, this is a common occurrence.  The problem is that there are so many different scoring models by the bureaus.  These models include scores for auto, insurance, credit card, and more.  But typically it is the online scores offered by freecreditscore.com, annualcreditreport.com, credit karma, or other direct to consumer scores that will vary widely from your mortgage credit score.

The reason the scores differ so much is that they all have different scoring criteria.  Plus some scoring models top out scores at 1000, but mortgage scores are 840.  So if you are given a score based on a 1000 point scoring system, it will be much higher than the mortgage credit scores.  Therefore the best thing to do is get your mortgage credit score and don’t trust the others when buying a home!

Did You Know…

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Written By: Russell Smith

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