FICO? Or FAKO? Don't Let Bogus Credit Scores Increase Your Mortgage Rate!

Many mortgage writers (including this one) advise prospective homebuyers to get their free credit reports and purchase their credit scores before shopping for a mortgage. We make this recommendation because your down payment and your credit score are arguably the two biggest factors lenders use to determine your mortgage rate, or if you can get approved for a home loan at all.

Consumer-pulled FICOs Differ from Lender-pulled FICOs

That's not the whole story, however. The credit scores that consumers are allowed to purchase are NOT the same scores used by most lenders. We reported on the LendingTree blog a few weeks ago that in fact there are several credit bureaus, each with many versions of their scoring systems and different formulas for calculating a score. There are FICO scores geared toward mortgage lenders, auto lenders, insurers, etc. Other mortgage lenders even have their own proprietary scoring systems. Consumers are not allowed to purchase any of those scores.

The nice folks at Consumer Reports reported this in their July issue. They don't recommend paying for your credit scores because about one-fourth of the time the score provided differs from what lenders come up with by a full category or tier. And it gets worse for half of consumers -- the Consumer Financial Protection Bureau (CFPB) found that discrepancies were much greater for those with better-than-median credit scores. If, for example, your consumer score is 720, you fall into the second-best group for mortgage pricing according to Fannie Mae. But if a lender says your score is 699, you drop down two tiers and could incur thousands of dollars in extra fees (called risk-based pricing adjustments).

What Can You Do About Credit Score Discrepancies?

If you have no idea what your credit score is, it's probably worth buying it to learn what you're dealing with. It also gives you a starting point when negotiating with lenders. If you don't know, the conversation could go something like this: "Well, Mr. Jones, your representative credit score is 699, so there is a 1.5 point pricing adjustment added to your loan fees." "Um, OK."

If you do know, your answer might be: "I have my credit score right here and it's 720. If you can't make this pricing adjustment go away, I'll go to a lender that uses a different scoring system. I have a 75 percent chance of finding one."

Consumer Reports Says Get Multiple Loan Quotes -- ALWAYS

Consumer Reports says that shopping around for your mortgage helps ensure the best deal, even if you don't know which credit reporting system mortgage lenders are using.

"Always shop for credit at multiple lending sources to find the best rate. Even if lenders won’t divulge their secret scores, getting rate quotes from several will reveal the best deal based on the numerous—and probably different—scoring systems used by prospective creditors."

Call around, visit several lenders or check online. Completing one form at helps you accomplish this in a single step and could save you thousands of dollars in mortgage costs.

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