With the rollout of FICO (Fair Isaac Corporation) 09 back in 2014 you could have 50 or more different scores. There are FICO score models for auto, mortgage, installment loans, credit cards, personal finance and even a general score. In addition to FICO, there are Vantage scores and other proprietary credit score models. The type of financing you are applying for (automobile, mortgage, etc.) determines the permissible purpose or the score model the financial institution will use or is required to use.
So why the different scoring models? Each score model will prioritize the information contained in your credit file based on what you are financing. When you apply for an automobile loan, the score will place more importance on the history of any previous auto loans you have on your credit file. The same would apply when applying for a credit card, with a greater emphasis on how you utilize your existing credit cards and payment history.
Mortgage scores may vary with each credit bureau since they each have their own scoring models (TransUnion FICO Classic 4, Equifax Beacon 5.0, and Experian/Fair Isaac Risk Model v2). In addition, creditors are not required to report to the bureaus and some may only report to one or two of the bureaus. Many collection agencies will report to only one bureau, which can impact one score dramatically while the other two scores are higher. Finally, most creditors do not report to the bureaus at the same time of the month which can also impact your score differently, especially if you pay off your credit cards each month.
FICO has released new credit scoring models many times over the years to align with changes to consumer’s credit behaviors. Banks, credit unions, mortgage lenders, etc. may take several years to upgrade to the current FICO scoring model which may result in different scoring models used by each lending institution. I mentioned FICO 09 previously, which is the current scoring model released by FICO. While the majority of banks, credit unions and credit card issuers are using this new scoring model, Fannie Mae and Freddie Mac have not adopted the new scoring model. This is important to know, since Fannie Mae and Freddie Mac play a significant role in the mortgage industry. This is the reason why your FICO score may be higher when applying for a credit card or an automobile loan vs. a mortgage. For example, FICO 09 ignores small collections below $100, carries less weight on medical debt and does not factor in paid medical debt into your score. If you are currently renting, your landlord may report rent payments to a credit bureau, then these payments and payment history will be factored into your score as well with FICO 09.
Because of the different scoring models, your personal score (what you see when provided with a free score with your credit card, bank account, etc.) can be 50-100 points higher than your mortgage score!
I’ve mentioned in my previous articles to review your credit report annually through www.annualcreditreport.com. You can also purchase your credit score through this same site, however, these are personal scores which are not usually used by any industry. I like to call them “feel good scores”.
Currently the only way you can determine your mortgage score is when you apply for a mortgage, whether it be for a purchase or refinance.
The good news is that all scoring models follow the same basic rules, which is paying your bills on time, keeping your credit card balances to below 30 percent or lower, keeping your existing accounts open to maintain payment history and only opening up new accounts when needed.
By following these basic rules, you can maintain a good FICO score no matter what model is used.
Branch Manager, NMLS #1721861
Cherry Creek Mortgage Co., Inc. NMLS 3001