3 reasons you and your lender may disagree on your credit score
Dear Credit Score Report,
My
credit scores are 762, 742 and 713. My bank is telling me the score that they
are using to refinance me with is 650. Something sounds fishy. Is this a way for
them to get more money? -- Rick
Hey Rick,
Something fishy may be going on, but it's also possible
there's simply some confusion over what credit score is being used. You'll need
to investigate to find out what's really happening.
First, let's consider the nonfishy explanations. There are
two main possibilities:
-
Type.
The credit scores you saw are based on a different model than the score your
bank is using.
-
Timing.
It's been a while since you checked those scores, and they may have changed over
that time period.
As
for the score type, there
isn't one model used by all mortgage lenders, so your bank has the choice of
what information to consider. "Different lenders may use different scores
or processes for determining credit worthiness," says John Mechem,
spokesman for the Mortgage Bankers Association (MBA), the national association
representing the real estate finance industry. Meanwhile, you could have
purchased different types of credit scores from any number of places, including
from a credit bureau or somewhere online. Banks, however, most often consider
the FICO credit score. FICO, the company that pioneered credit scoring formulas, says mortgage lenders use its scores on at least 75 percent of all U.S. residential mortgage originations (the processing of loan applications).
But
mortgage lenders don't have to use FICO scores -- or any other credit scores,
for that matter. "They may bypass the score altogether and look at the full credit history,
including the credit report," the Mortgage Bankers Association's Mechem
says. So your bank has a choice of what
information to use during the refinancing process. To find out what scoring model is being
considered in your case, you'll need to ask the lender.
Because your credit scores can change, timing is
also an important factor. If the three numbers you saw are FICO scores, then it
certainly has been a while since you checked them, since it's no longer possible
to view the FICO scores from all three credit bureaus. With a few exceptions, consumers lost access to their Experian-based FICO scores back in February 2009.
Changes in your credit history will impact those scores.
Think about your borrowing behavior since you last checked your credit: Have
you missed any loan repayments? Borrowed more money? Canceled any credit cards? Such
actions could influence your credit scores. Additionally, your credit scores
can drop through no fault of your own. Errors that have cropped up on your
reports could be impacting your credit, so look over your credit reports from
all three bureaus (Experian, Equifax and TransUnion) for any mistakes and dispute them.
However, the possibilities I've outlined may not explain why
your lender is using that score. Experts agree that what you describe is
unusual. "Most mortgage lenders will take the middle score as 'the' score
for an applicant. In Rick's case, that would be the 742 score," says Gregg
Weldon, chief analytical officer with AnalyticsIQ Inc.
in Atlanta. (Weldon knows scoring models; he built generic and custom models
for Equifax in the mid- to late-'90s.)
"I'm not sure why they would go with 650 (750 maybe,
but NOT 650). There's something
definitely wrong there," Weldon says in an e-mail.
I hope that by asking the right questions and checking your credit, you can figure out what's going on. But if something still smells funny even
after you take those steps, you may need to cut bait and find a new bank. It's what the mortgage industry recommends. "We
encourage all borrowers to shop their loan to different lenders," MBA's
Mechem says.
Good luck!
--Jeremy
See related: Consumers lose access to major credit score, Free credit reports: How to get the actual free one, How to dispute credit report errors, Decade-old credit mistakes shouldn't appear on your report, Refinancing won't do lasting credit score damage
Jeremy M. Simon is a former CreditCards.com reporter who wrote about credit scoring, economic data, credit card crime and other issues. He is based in Austin, Texas. He is a graduate of Vassar College and has previously worked for Thomson Financial in New York City, where he wrote about the stock markets, and Texas Monthly, as well as several publications in Austin.
Send your question to The Credit Score Report.
Published: November 16, 2010
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