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Taking The Mystery Out of Credit Score Calculations

Posted by Jane Peters on May 29, 2019
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Credit … Credit Building … Credit Repair … Credit Reports … Credit Scores … Credit Scoring …  
Taking the mystery out of credit scoring
I feel a bit like Bubba in Forrest Gump at times when I speak or write of credit-related things …Why?  Because such a large number of the questions I receive as a Chicagoland Mortgage Originator revolve around credit and credit topics.   And rightfully so, as credit … and all things reliant upon credit … make our world go ’round.Our credit and our credit standing (via Credit Scores) affect everything about our lives.  From simple and modern daily needs like acquiring cell phones and securing insurance … to important life needs.

Stop and think about it … 

In this modern age, housing (rental and purchase), employment, security concerns (licensing demanded in many professions), auto loans, credit cards, application for utility services, building savings, and more are often based on having credit.  And in many circumstances, that credit must be good (or at least “adequately good”).

Given its importance then, it’s only natural that questions concerning credit abound.  And it’s why I address the topic of credit in so many of my blog articles.

Here’s just a sample of the wide range of credit-related info I’ve focused on in the past:

But one of the questions I hear most often is, “What is the highest Credit Score available?”  Well, unfortunately, providing a quick and easily understood answer isn’t simply done.  Here’s why …

There are 3 Major Credit Bureaus:

Each of these credit bureaus is a business and not a service as often referred to.  In fact, each has its own methodology and model for calculating their separate and independently created credit scores.  Their individual and independent methodologies have a RANGE of scoring unique to their own knowledge of your personal credit history.
I was reminded of this fact just recently … 
A potential client looking to refinance their loan with me was under the impression that he had excellent credit.  He touted, prior to our running his credit report, that his credit scores would certainly be categorized as “the best credit scores available”.  Of course, immediately upon saying this, he then quizzed me as to what that credit score number would or could be?
Not trying to sound evasive, my honest answer reiterated my message above. “Unfortunately, providing a quick and easily understood answer isn’t always simply done.  And here’s why.
Residential Mortgage Credit Reports are unique to other industries that use credit analysis.
Other industries such as car dealerships, and their representative banks offering their auto financing, utilize different scoring models.
For Mortgage Underwriting purposes, the scoring ranges from the 3 Major Credit Bureaus (Experian, TransUnion, Equifax) are:
  1. Experian:  Scoring Models range from 300 to 850, low to high
  2. TransUnion:  Scoring Models range from 309 to 839, low to high
  3. Equifax:  Scoring Models range from 334 to 818, low to high
To complicate matters for borrowers and the public, even more, certain “Businesses” that offer credit repair or credit services can also have a different rating scale that they use.  Some of those businesses include credit card companies that offer a “free” credit score to their customers within their monthly statement.
Hopeful Borrowers contact me thinking they already know their credit scores, based upon the “free” credit card company score they’ve received from one of these sources.   All too often, those “free” credit scores do not represent anything close to the scores a Mortgage Lender will utilize during their mortgage application.
As you can see, the question regarding “best credit scores available” is not answered quickly or easily … or even with one simple number.  That number is dictated by the originator of the credit request, as well as the purpose of that request.  That number is dependant on who is asking and for what purpose.
So when it comes to seeking and obtaining a mortgage in order to finance (or refinance) a home or investment property, you need to go to THEE source for your funds in order to gain an answer regarding your credit scores or “best” scores available.  In most cases, that will be a Mortgage Originator/Lender.
I’ll add to that advice:  Because a Mortgage Lender’s scoring model is the one that you will be dependant on for your financing and financing terms, it’s wise to seek a consultation with an Originator early in the purchase (or refinance) process.  That way you have the facts as they pertain to your credit scores.
You’ll also have time to raise credit scores if needed or correct any errors that may appear on your credit report.  This early action on your part can save you big money, as well as time and frustration later.
Get all your credit questions ahead of time and be fully prepared and equipped to utilize the best credit scores available … and the best mortgage terms possible … for yourself.
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