Do you use Credit Karma to help you keep track of your credit score? If you are thinking about checking it before you apply for a mortgage, you might want to think again.
CNBC recently reported that this free tool’s information can actually cause confusion among borrowers.
Reporter Elizabeth Gravier writes, “Consumers tweeted about going to apply for a credit card or loan thinking they have good or excellent credit, only to soon find that the credit score that the card issuer or lender pulled was lower than what they saw on Credit Karma.”
Why would the score your lender pulls be lower than what you saw when you checked your score using Credit Karma?
When a lender pulls your score, it is usually your FICO score. But the score that Credit Karma shows customers for free is actually another credit score called a VantageScore.
Your FICO Score
FICO is a data analytics company that was founded as “Fair, Isaac and Company.” Your FICO credit score is your most important one, because it is typically the one that lenders pull.
It is the score that goes into determining whether or not to offer you a mortgage, and at what interest rate.
FICO scores are calculated using these factors:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
These are the FICO score ranges:
- Exceptional: 800+
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 579 and below
Your Vantage Score
Now that you know about your FICO score, let’s talk about your VantageScore.
VantageScore is an alternate score that Experian, Equifax, and TransUnion developed. While it is an important score, it is not used for mortgages.
The percentages for calculating this score are not available, but we do know that they are weighed accordingly:
- Payment history: extremely influential
- Age and type of credit: highly influential
- Percentage of credit limit used: highly influential
- Total balances and debt: moderately influential
- Recent credit behavior and inquiries: less influential
- Available credit: less influential
The rankings for Vantage Scores are:
- Excellent: 750 to 850
- Good: 700 to 749
- Fair: 640 to 699
- Needs work: 300 to 639
Because of the different ways that each of the two credit scores factor in your balances, debts, types of credit, and more, your FICO score and VantageScore will differ.
Before Applying for a Home Loan, Take a Look at Your FICO Credit Score
If you only check your VantageScore using Credit Karma for free, you won’t know what lenders will see when they do pull your FICO score.
If you are caught off guard, it could mean a higher interest rate, or it might mean failing to get your application approved altogether.
To save yourself from that kind of hassle, you should look up your FICO score either by purchasing it from one of the credit bureaus or by obtaining it for free.
How can you do that? Your credit union, bank, or credit card provider might offer you free access to your score. Another idea is to sign up for Discover Credit Scorecard, a free service that offers monthly updates.
Get Help With Credit Scores and Your Home Loan Application
If there are unanswered questions you have regarding your credit scores, we can answer them. We also can give you tips and tricks for raising your score before you apply for a mortgage in Florida. Please call us at 954-840-8811 to begin.