Credit Score Exposed: What Lenders Actually See

Patriot Nation, credit scores. You know yours. But do you actually know what the lender sees when they pull it? Because it's not the same thing you see on your phone. There are dozens of scoring models, and the one your lender uses might give you a number that's 30 points higher or lower than what you're used to seeing. So, today we're going to break down exactly what lenders see, how they use your credit score, and what you can do to make sure you're putting your best foot forward when you apply for a mortgage. So, as always, let's kick off this rodeo right now. Hi folks, I'm Kevin Fagan, the mortgage patriot on your side, nestled here in the Hill Country above San Antonio, Texas, showing all you proud Texans and all you great folks all around the country another great one. So, credit scores. Let's talk about this for a minute. You go to Credit Karma, you see a 720. You're feeling good. You go to apply for a mortgage and the lender pulls a 688. And now you're confused. What happened? Well, here's what happened. Credit Karma uses what's called a Vantage Score. And Vantage Score is a different scoring model than what mortgage lenders use. Mortgage lenders use what's called a FICO Score. And not just any FICO Score. They use FICO versions 2, 4, and 5 from all three credit bureaus. And then they take the middle score. So, if you've got three scores, they drop the high and the low and they use the middle. If you've got two scores, they use the lower of the two. That's the score that determines your interest rate and whether you qualify at all. So, the first thing you need to understand is that the number on your phone and the number the lender sees are often different. And that's normal. Now, let's talk about what goes into your FICO score. There are five main factors. Payment history makes up about 35% of your score. That's the biggest one. So, if you've got late payments on your record, that's going to hurt you the most. Credit utilization makes up about 30%. That's how much of your available credit you're using. If you've got a $10,000 credit limit and you're carrying a $9,000 balance, that's 90% utilization and that's going to tank your score. Length of credit history is about 15%. The longer you've had credit accounts open, the better. New credit inquiries are about 10%. Every time you apply for new credit, it dings your score a little bit. And credit mix is the remaining 10%. Lenders like to see that you can handle different types of credit, like credit cards, auto loans, and installment loans. So, what should you do before applying for a mortgage? First, check your credit report. You can get it for free once a year from annualcreditreport.com. Look for errors. You'd be surprised how many people have incorrect information on their reports. Dispute anything that's wrong. Second, pay down your credit card balances. Get them below 30% of your limit. Ideally below 10%. That's going to have the biggest impact on your score in the shortest amount of time. Third, don't open any new accounts in the six months before you apply for a mortgage. Don't close any old accounts either. Just let them sit there. Fourth, don't make any big purchases on credit. No new cars, no new furniture, no nothing. Keep everything stable. And fifth, if you've got a collection on your report, talk to your loan officer about whether to pay it off or leave it alone. Sometimes paying off a collection can actually lower your score because it refreshes the date of last activity. So, be careful with that one. Here's the thing that a lot of people don't realize. Your credit score is not static. It changes. It changes every month. So, if your score is a 680 today, it might be a 720 in three months if you do the right things. And that 40-point difference could save you tens of thousands of dollars over the life of your loan. So, it's worth paying attention to. I'm the mortgage patriot, Kevin Fagan, on your side. Make it a great one.