Credit Karma vs. Mortgage Credit

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“What! My credit score is a 700 on Credit Karma. Where did this 660 come from?”

We hear versions of this comment daily. When clients call us to get a quote on a loan and tell us their credit score is 700, we base their offer on that number. Then, when we pull their credit, we get a much lower score. Confusion ensues.

With the advent of online credit monitoring and free credit scores sites, such as Credit Karma and Credit Sesame, more and more customers are aware of their credit history and credit score than ever before. However, the score they get from these sites rarely, if ever, match what they get when they apply for a mortgage. Why?

First, it’s important to understand the credit scoring standard that the mortgage industry has used for nearly 30 years. It’s called FICO, Fair Isaac Corporation. They set the scoring standard that is used by the 3 major credit bureaus, Experian, Transunion and Equifax.  FICO is not itself a credit reporting agency.  Scores range from a 300 to 850.   If you’ve purchased a home or car in the last 10 years, the lender has almost certainly used your FICO score to make that credit determination.  

Consumer credit monitoring companies don’t usually use FICO, they typically use the VantageScore 3.0 scoring model.  Vantage was created as a joint venture between the 3 major credit bureaus and similar score ranges as FICO.  

Both FICO and Vantage use 5 criteria to determine your credit in the order of importance to your score

  • Payment History
  • Length of Credit 
  • Types of Credit
  • Credit Usage
  • Recent Inquiries

The difference in the two comes down to how they weigh these criteria.  For instance, Vantage is more lenient on customers with shorter credit history and/or less overall accounts. So, customers with shallow credit will often see a much higher VantageScore than a FICO score. Vantage looks at all late payments the same, while FICO penalizes your score more for mortgage late payments than Vantage.  Customers with mortgage late payments will almost always see a higher VantageScore than FICO.

Vantage and FICO are the only two models on the market.  While they can, and do oftentimes vary, checking your credit often is extremely important regardless of which model you use since errors and derogatory items will show up on both models.  

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