Why Doesn't My Online Credit Score Match My Score With a Mortgage Lender?

It is a bit of cruel irony that financial experts often suggest purchasing your credit score, but lenders may see a completely different one and make the purchase almost worthless. While you only have one credit history, there are dozens of scoring systems in use -- almost 1,000, according to Experian, one credit bureau. This is why the best thing you can do for loan approval is improve your overall financial health.

Purchased Credit Scores

Each consumer with a credit file has four scores that use a similar calculation, but subtle variations in their algorithms can cause drastic changes. The main one is the Fair Isaac Company risk model. The major credit bureaus -- Equifax, Experian and TransUnion -- sell scores based on the FICO model. Lenders tend to pull report from the major bureaus, but use the FICO algorithm. Technically, the bureaus sell their scores for educational purposes only.

Score Manipulation

Whether the lender uses the FICO model or buys scores from the agencies, the creditor has three scores to deal with, because the credit agencies tend to have slightly different information. Lenders might use the highest or lowest one, but more often they use the middle score. This, however, does not preclude a lender from deriving a score from a custom formula or using another way to manipulate scores, such as taking their average.

Mortgage Formula

The FICO algorithm has 10 different demographic groups, called scorecards. The scorecard you fall into changes the weight of some variables. As of 2011 FICO keeps the specifics of these demographics secret, but it is possible that you changed scorecards between when you purchased your score and when the mortgage lender ran your report. You might, for example, have gained enough credit history to change from a new to an experienced borrower.

Tip

There is nothing you can do about how a lender views your score other than perfecting your credit history. As long as you have no negative items on record, you should have great credit in any scoring system -- but make sure the major bureaus report all of your positive accounts. Do not forget lowering your overall debt balance. Lenders want to see a low monthly debt burden compared to your monthly income as much as they want to see a high credit score. Sometimes this debt-to-income ratio is more important.