When you’re considering buying a home, one of the first steps you’ll likely take is checking your credit score to understand where you stand financially.

Many people turn to popular consumer apps like Credit Karma or Credit Sesame for this purpose, as these tools offer free access to credit scores and reports. However, the score you see on these consumer apps differ significantly from what mortgage lenders use to evaluate your credit.

This discrepancy can be confusing for homebuyers who believe they have good credit, only to find out that their mortgage score is much lower.

In this article, we’ll dive deep into why this happens, the differences between mortgage credit scores and consumer scores, and what you can do to better prepare for your mortgage application.

What’s the Difference Between Mortgage Credit Scores and Consumer Scores?

The primary difference between the scores you see on apps like Credit Karma and the ones used by mortgage lenders lies in the scoring models and algorithms used. Here’s a more detailed breakdown of these key differences:

1. Different Scoring Models

• Mortgage Credit Scores: Most mortgage lenders use specific versions of the FICO score model—typically, FICO Score 2, 4, or 5. These older versions are tailored for mortgage lending and have a different way of calculating your creditworthiness.
• Credit Karma and Other Consumer Platforms: These platforms often use the VantageScore model, an alternative scoring system to FICO that uses a different algorithm. VantageScore places less emphasis on certain factors, which can result in a higher or lower score than the FICO model.
• Credit Sesame: Similar to Credit Karma, Credit Sesame also uses the VantageScore model to provide free credit scores to users. However, these scores are often updated more frequently and may not reflect recent negative information in the same way FICO scores do.

2. Different Weighting of Credit Factors

• The FICO scores used by mortgage lenders weigh factors such as payment history, credit utilization, and the length of your credit history differently compared to the VantageScore or the newer FICO models like FICO 8 or FICO 9 that you see on consumer platforms.
• Mortgage scores tend to be more conservative, meaning they may penalize recent negative information more heavily and may not reflect positive changes as quickly.

3. Number of Scores Considered

• When you apply for a mortgage, the lender will pull your credit from all three major bureaus: Equifax, Experian, and TransUnion. They then use the middle score of the three as your qualifying score.
• Consumer credit platforms like Credit Karma and Credit Sesame typically provide a score from only one or two bureaus, which may not give you a full picture of your overall creditworthiness.

Table: Comparison of Credit Scoring Models Used by Mortgage Lenders and Consumer Platforms

Why Are Mortgage Credit Scores Typically Lower Than Consumer Scores?

If you’ve ever noticed that your mortgage credit score is lower than the score you see on apps like Credit Karma or Credit Sesame, you’re not alone. This is a common experience for many homebuyers. Several reasons contribute to this difference:

1. Different Algorithms: FICO mortgage scores use older versions of the FICO scoring algorithm, such as FICO 2, 4, or 5, which react differently to your credit history compared to newer models like FICO 8 or VantageScore. This means that the mortgage score may penalize certain behaviors, such as high credit utilization, more heavily.
2. Conservative Approach: Mortgage scores prioritize stability and reliability. They may weigh recent negative information, such as late payments or high credit utilization, more heavily compared to consumer scores.
3. Delayed Updates: Mortgage scores are updated less frequently than consumer scores, meaning recent positive changes may not be reflected immediately. For example, if you recently paid off a large credit card balance, it may take longer for this to show up on your mortgage score compared to your consumer score on Credit Karma.
4. Exclusion of Certain Types of Debt: Some consumer scoring models, like VantageScore, treat medical debt and certain other debts more leniently compared to mortgage scores, which can cause a discrepancy.

Real-World Example: Credit Karma vs. Mortgage Score

Let’s say you’ve been using Credit Karma, and it shows your credit score as 740. You’re excited because you know a score above 720 usually qualifies you for the best mortgage rates.

However, when you apply for a mortgage, your lender pulls your score and finds that your middle FICO score is only 680. This difference can mean thousands of dollars more in interest over the life of your loan.

In this scenario, the difference is primarily due to the scoring model. The FICO Score 4 model weighs certain factors, like high credit utilization, more heavily than the VantageScore 3.0 used by Credit Karma.

How to Check Your Mortgage Credit Scores

The best way to see your mortgage credit scores is by obtaining your FICO scores directly from each credit bureau or using a service like MyFICO. These services provide you with the same scores that lenders see when you apply for a mortgage, giving you a more accurate picture of your mortgage readiness.

Steps to Check Your Mortgage Scores:

1. Visit MyFICO or a similar site: Purchase your full credit report, which includes the FICO scores used for mortgage lending.
2. Select the right package: Choose a package that includes FICO Score 2, 4, and 5 for a more accurate view of your mortgage scores.
3. Review your scores from all three bureaus: This will help you understand which score is likely to be used by the lender when evaluating your application.

How Do Mortgage Lenders Use Credit Scores?

Lenders use your credit score to determine your eligibility for a loan, the interest rate you qualify for, and the amount of credit they’re willing to extend. Typically, the higher your score, the better your terms will be. However, even small differences in scores can have a significant impact on your mortgage options.

Example:

A borrower with a FICO score of 740 or above may qualify for the best available mortgage rates, while a borrower with a score of 680 might pay an additional 0.25% in interest. This difference can add up to thousands of dollars over the life of the loan.

Mortgage Credit Score FAQ

1. Why is my mortgage credit score lower than my Credit Karma score?

Mortgage credit scores use older FICO models that are more conservative and weigh factors differently, leading to lower scores compared to consumer scores.

2. What score do I need to qualify for a mortgage?

Most lenders require a minimum credit score of 620 for conventional loans and 580 for FHA loans. VA loans have no set minimum, but most lenders prefer 620 or higher.

3. Can I improve my mortgage credit score quickly?

You can improve your score by paying down credit card balances, avoiding new credit inquiries, and making on-time payments. However, mortgage scores may not update as quickly as consumer scores.

4. How often do mortgage credit scores update?

Mortgage credit scores update less frequently than consumer scores. Positive changes in your credit may take longer to reflect in your mortgage scores.

5. Is VantageScore used for mortgages?

No, mortgage lenders do not typically use VantageScore. They rely on FICO scores, specifically versions 2, 4, and 5, which are tailored for mortgage lending.

6. Where can I get my mortgage credit score?

You can get your mortgage credit score directly from the three major credit bureaus or through services like MyFICO.

7. Why do mortgage lenders pull all three credit scores?

Lenders pull all three scores (Equifax, Experian, and TransUnion) to get a comprehensive view of your credit profile. They use the middle score of the three as your qualifying score.

8. Will checking my mortgage credit score lower my score?

No, checking your own credit score is considered a soft inquiry and does not affect your score. However, a lender’s inquiry is considered a hard inquiry and can impact your score slightly.