And then the lender drops the bomb – “Sorry, but your credit score is too low. You do not qualify for the best interest rate.”
What happened? How can the credit score you buy from the credit reporting agencies be higher than the one the loan company receives? The answer is a simple one – there is more than one kind of credit score. Each of the three main credit agencies – Equifax, Experian and Trans Union, uses a different method of determining credit ratings. While the scale and standards they use are roughly the same, the formula is slightly different at each agency, so checking with all three bureaus could provide you with three different scores. Or even four – the three bureaus are now also making use of a unified scoring method. But which one is the “correct” score?
Mortgage lenders nearly always check the FICO score, created by Fair, Isaac, and Co. The FICO score is comparable to many others, but it is the one that lenders are checking. That means that if you wish to know exactly where you stand ahead of time, you need to check your FICO score yourself. And you need to create sure that the number you get is, in fact, your FICO figure and not some other arbitrary score.
How can you do that? There are a lot of places on the Internet where you can obtain a credit score, but not all of them will offer the FICO figure. Make sure that the website you visit offers the FICO score before you agree to pay. Equifax makes the FICO figure available on their web site, as does MyFICO.com. If you aren’t sure, you might check with one of those two Websites. Making certain you have an accurate representation of your monetary health before applying for a mortgage is a good idea. Just make sure that you are looking at the same measure of financial health that your loan company will use – your FICO score.