What FICO version are you using, anyway?
The credit scoring industry is a billion (at least!) dollar industry. Soft pull credit information is what you get when accessing credit score data from Credit Karma, Equifax, Experian, TransUnion, My FICO, the score your credit card or bank gives you, etc.
A hard pull is when a lender is actually pulling a credit score to allow them to extend you credit. Lenders pull those scores from a credit scoring agency that may use different FICO models across the industry. FICO is the Fair Isaac Corporation, a business that has the proprietary technology of credit scoring algorithms most credit scores are based on. As they roll out new and more advanced models, it’s a new FICO model.
Usually when a lender pulls a credit report they don’t even know what FICO model they are using. Sometimes it’s a different model for the Experian the TransUnion or the Equifax scores on one credit report.
Why does this matter? Well, because it’s confusing and it helps you understand why every single time you look at your credit score, it’s different. I think it’s a bit like stepping on the scale, you want to monitor what that scale says, but if you weigh yourself multiple times each day, you get a different result based on fluctuations in your body. Same with your credit score, it fluctuates as different data is reported. Did you pay your credit card bill in full? Did you max it out? Did you forget to pay your bill? Did you open or close a line of credit? Did you have a late payment? Did you have a new collection? All of those things affect the numbers.
It’s important to realize that the soft pull scores you monitor on a weekly/monthly/quarterly basis are great indicators of the pattern and are directionally accurate, not necessarily point for point accurate. If you are watching to make sure there are no large dips, no fraud and that it’s generally trending in a positive direction, then it’s a good tool. You want to keep your scores as high as possible, of course, but sometimes life happens and it dips.
The tips to keeping a high score are easy!
- Pay your bills – on time, every time
- Have a credit card, but BE RESPONSIBLE with it. Keep it forever since longevity with one line of credit really has a positive impact on your score and know that utilization is very important. Never max it out – do not go over 30% of your credit limit, even if you are paying it in full each month, that is considered a negative behavior and will pull the score down. Using a minimal amount is considered responsible credit card behavior and will reflect with a higher score than abusing it by charging too much of the credit limit. Again, even if you pay in full each month, that utilization percentage is very important in the way the FICO algorithm scores your behavior.
- If you pay off a collection, make sure it is deleted/removed, not just showing as paid to zero!
- Do NOT close revolving accounts! This lowers your scores!
Most lenders want to see a high a credit score. You typically qualify for a lower interest rate with a higher score but that depends a bit on the loan program (VA/Conventional/USDA Rural Development/FHA) as well as the lender. In the mortgage world, 640 is often the lowest score a lender can use to qualify a mortgage applicant.
It is important to talk to 2 to 3 lenders during the qualification process. One lender may only offer Conventional financing, a fixed rate or an Adjustable Rate Mortgage (ARM), so if your score isn’t perfect, they will often make a borrower settle for an Adjustable Rate Mortgage. Another lender, like RMN, offers programs with some flexibility. These are NOT bad credit loans, but they are programs (FHA, VA, USDA Rural Development) that don’t penalize a borrower for a credit score down to 640.
Talking to a few lenders during the process can also highlight the differences between the different lenders and/or programs. For instance, student loan debt is calculated differently based on loan program and sometimes based on lender (this can be referred to as an ‘overlay’ when it’s lender specific). If you have student loan debt that is deferred or on an income-based repayment plan, you want to understand what the lender is using as a minimum monthly payment for qualification purposes. This can allow you more purchasing power if the lender uses the lowest figure possible.
Another factor that can affect your purchasing power is co-signed debt. Did you co-sign so that your brother/sister could buy a car? Did you realize that can get counted towards your monthly debts? That means your purchasing power is reduced by the amount of that payment. Again, this can be lender specific, so make sure to talk to your loan officer if you have questions about this scenario.
What else sets Residential Mortgage Network apart? We live in Iowa, we lend in Iowa, we care about Iowans. We have been in business since 1987 serving Iowans and their families. Some buyers try to work with out of state or national lenders and we hear from Realtors how poorly it goes. Or from the buyers themselves when they jump away from their other lender and to RMN. Why would someone do that? Because we are here to actually help. We will be your neighbor or your future customer and we want to build that lasting relationship in the communities we serve. We can lend anywhere in the State of Iowa, but do most of our work in the corridor where our offices are located. The main office is in Iowa City at 2507 Highland Place and we have one loan officer that works out of the Cedar Rapids office at 1921 51st Street NE. We want to work with Iowans to help strengthen our community and offer the best products and service possible.