In this day and age information is right at our finger tips! Searching for housing , paying bills and even checking your credit score is as easy as the click of a button! But just how accurate are these online methods of checking your credit score & why are so many people surprised when they apply for a loan and are told their score is much different than they thought?
To understand the difference we must first understand what we are comparing? Online credit scoring such as credit karma and the scores provided to us on most of our credit card accounts are based on a method called Vantage Scoring. This method was created in 2006 and basically rates you based on your previous payment history and your utilization of current debts. The scoring ranges from 300 to 850 and is mostly provided as a free service offering you just one score. These companies make their money from advertising to consumers. While this is becoming more popular currently only about 10% of financial institutions use this scoring method and there seems to a common discrepancy, often coming in much lower than the traditional scoring methods.
So when you call up a lender and apply for a mortgage what method will your lender be using ?
The answer is the FICO or Fair Isaac and Company scoring method. The FICO score was established in 1956 and uses and algorithm method of measuring your payment history, length of credit, number of recent inquiries and utilization of credit in order to give you a rating – ranging from 350-850. So why are the two so different? Well the Vantage Scoring method gives you one score while the traditional FICO method generates three scores. Lenders will use the middle of these three scores to rate your credit worthiness.
While the convenience of having your credit score right at your finger tips may seem to be keeping you informed of your rating, don’t let this method give you a false sense of security! These methods are great ways to watch for unknown inquiries or new opening of accounts but before you start home shopping be sure and reach out to a lender for your FICO score!!!
Credit Karma is to lenders, what Zillow is to Real Estate. They are consumer websites that take into consideration a bunch of general information. When you apply for a car loan, a credit card or a mortgage, each creditor uses a different metric to determine credit worthiness. So if you are thinking of buying a home, you should ALWAYS speak with a mortgage person first, let them pull your credit and check income and debt because the credit score your lender gets may different from the free credit scores shown on Credit Karma and your credit card statements.
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Randolph Savings Bank
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