April 7th, 2017 7:23 AM by Jackie A. Graves, President
When is your “credit score” irrelevant in buying a house or
refinancing a mortgage? A new federal legal settlement with a major credit
bureau has the answer: The only score that matters is the one your lender uses
to evaluate you, not some random score you got on a website.
the others you might buy or see — there are dozens of them hawked on the
Internet — may be interesting, but they won’t affect the interest rates you’re
quoted, the fees you’re charged or whether your application gets approved or
new legal settlement from the Consumer Financial Protection Bureau alleges that
Experian, one of the big three credit-reporting bureaus, “deceptively marketed
credit scores to consumers by misrepresenting” them as “the same” as what their
lender would use in determining whether and on what terms to offer them a loan.
fact, said the bureau, the scores Experian advertised extensively were its own
proprietary “educational” scores that virtually no lenders use to make credit
promotions appeared on third-party websites, banner and display ads, direct
mailings and sites such as FreeCreditScore.com, FreeCreditReport.com and CreditReport.com, as well as AnnualCreditReport.com.
As part of the settlement, Experian was fined $3 million. The
case follows Consumer Financial Protection Bureau settlements in January over
similar allegations with the other national credit bureaus — Equifax and
TransUnion — in which they were required to make $17.6 million in restitution
to consumers and pay $5.5 million in fines. TransUnion and Equifax were accused
not only of falsely representing the usefulness of their in-house educational
scores but also luring consumers into “costly recurring payments for
credit-related products with false promises.” All three bureaus denied any
brings us back to mortgages. If you’re like many home buyers and owners, you’ve
seen online pitches and ordered your scores, often free. They may have come
with tie-ins to credit card offers or credit monitoring and
One site may have said your score is 788, ranking you as
“excellent” on their scale. Another may have said you look even better — your
credit score is 801 and you’re among the credit elite.
with these seemingly sterling scores, you start checking out mortgage company
offers. With an 801, you figure, hey, I’m bulletproof. I’m a prime candidate
for the best mortgage deals out there.
you apply to a lender for a preapproval and get the sobering news: Your middle
FICO score — lenders often pull scores from all three bureaus — is a 716, and
that’s what we’ve got to use to price your loan. The score is okay, but it’s 85
points below where you thought you were and below the cutoff point for the best
mortgage interest rates and terms.
FICO scores, which are predominant in the mortgage market and
mandated by giant investors Fannie Mae and Freddie Mac, run from 300 to 850.
Higher scores mean lower risk to the lender. Lower scores can cost you a lot.
According to a March 23 national survey for FICO by Informa Research Services,
a mortgage applicant with a 765 FICO would get an average quote of 3.8 percent
on a $300,000 loan with a monthly principal and interest payment of $1,405. The
same applicant with a 650 FICO would be quoted an average rate of 4.9 percent
with a monthly payment of $1,589 — $184 more a month.
here’s a little complication: The FICO score your lender pulls for your
mortgage application might not be the same as the FICO score your credit card
company might be sending you every month online. Or, perplexingly, it might
even be different from the FICO score you get on MyFICO.com.
because FICO has introduced multiple models over the years, each with what the
company describes as consumer-friendly improvements. The latest is FICO 9. The
most widely used is FICO 8.
most mortgage lenders use the older models specified by Fannie Mae and Freddie
Mac. The differences in scores from older to newer may be modest for many
applicants, but could be significant for some. Fannie and Freddie are
considering updating their scoring models but have not done so yet.
Bottom line: Ask your loan officer which model was used to
generate your FICO scores. And never depend on generic scores available online
as part of your mortgage planning process.
By Kenneth R. Harney - To view
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