You’ve probably heard of Credit Karma – even the name sounds nice, doesn’t it? But, despite that, you’d be surprised how many borrowers are shocked that their Credit Karma score is lower than the FICO scores their lender uses. Read on to find out why. And most importantly, what you need to know about credit scores when applying for a mortgage.
Credit Karma Scores That Are Too High
In any given week, we have borrowers contact us who are very proud of their Credit Karma score. We call them the overly confident borrower. They’re sure that they’ll be able to get the best rate based on their score. But when we pull their credit, their score is much lower. They were devastated.
Karma Credit Scores That are Too Low
On the flip side, we’ve had borrowers who were sheepish about their low Credit Karma score. We call them the shy borrower. They asked if there was any way they could qualify for a mortgage. We pull their credit, check their FICO score and find it’s much higher than they thought. They were elated.
Credit Karma vs. Actual Score
What’s with the discrepancies? The answer is easy. Credit Karma uses a different scoring system than the one mortgage lenders use. There are two main scoring systems:
- FICO – it was created in the 1950s and is used by mortgage lenders
- VantageScore – it began in 2006 and is what Credit Karma uses
Although FICO and VantageScore use the same data, they process it differently. That’s why the scores can be so far apart.
It’s similar to how the UK, Europe, and the USA measure shoe sizes. All measure the same foot, but they come out with different numbers. For example, a women’s size 6 in the US would be a 4 in the UK and a 37 in Europe. Same feet – different numbers.
In general, your FICO score is used in nearly 90% of lending decisions. Keeping on top of it could be the information you need when applying for a new loan.
Understanding how the three major credit bureaus use your FICO score is important too. It get’s confusing, but know that there is a different FICO score for different types of loans. For auto lending, Experian looks at a combination of FICO Auto Score 9, 8, and 2. And for Mortgage lending, they’ll take a look at FICO Score 2.
How many credit scores do you have?
Many borrowers think they only have three credit scores – one for each bureau (Equifax, Experian, TransUnion). But even though the consumer information comes from the three main bureaus, different scoring algorithms are used to develop the score. That’s why there are hundreds if not thousands of credit scores. Some are industry-specific, like in the auto industry.
Add to the confusion that scoring models are updated all the time. The moral of this story is if you’re getting a mortgage – don’t think your Credit Karma score is accurate.
What Consumers Have to Say
If you want to know what people really think – check social media. Some people have been pretty vocal regarding Credit Karma. Here are a few Tweets from Twitter:
“Credit Karma always says my credit score is like 750. But then we just refinanced, and the bank sent out the credit disclosure letter and said my score was 825.”
“Credit Karma is wrong 99% of the time. They can be anywhere from 100 points higher to like 80 less than the actual score.”
“If you think your credit score on Credit Karma is right, you wrong, lol.”
And for the last one – a bit more colorful!
“Credit Karma: “your credit score is 800.”
“Car dealerships: “ma’am. your sh*t is 325.”
Who should you trust?
When you’re going to get a mortgage, have your credit pulled by the lender you’re going to use. They’ll get all three of your scores and take the middle one. If your score is too low, a good lender will tell you how to raise it. Knowing your score and whether you have good credit or great credit is important. That’s because your ability to get a mortgage and what type of interest you’ll be paying is connected to your score.
What is Credit Karma Good For?
If you want a free service to just “monitor” your credit, it works. You’d be able to see if there’s a new account that’s open or something fraudulent. It can keep you aware of what’s happening in your credit file. The key thing is to not rely on their scoring.
It’s important to keep an eye on your credit score and continuously check for any errors or changes to your score in general. Through the Federal Trade Commission’s website, you can find the necessary information to get your credit report from all three nationwide credit bureaus. All you have to do is contact them and they will send you your annual credit report. Plus it’s free! A great idea if you plan on applying for any loans in the near future.
Final Comments
Sometimes it’s great to get a pat on the back – even if you don’t deserve it. But when it comes to your credit score – it’s best to know the plain truth and deal with it. At Homestead Financial Mortgage, we’re straight shooters. We’ll pull your credit, let you know your scores, and work hard to get you a loan.
Homestead Financial Mortgage is a top mortgage lender. Our low-interest home loans are some of the best in the states we serve. We service Arkansas, Colorado, Florida, Illinois, Indiana, Kansas, Missouri, Ohio, Tennessee, and Texas. Contact us today to learn more about the home loan products we offer that are right for you.
As a seasoned financial expert deeply entrenched in the world of credit scoring, I can attest to the nuances and complexities involved in understanding credit scores. The article highlights a common misconception among borrowers regarding the variations between Credit Karma scores and the FICO scores used by mortgage lenders. Let's delve into the key concepts presented in the article:
1. Credit Karma vs. FICO Scores
The article underscores a fundamental difference between the scoring systems employed by Credit Karma and mortgage lenders. While Credit Karma relies on the VantageScore system, mortgage lenders predominantly use the FICO scoring system, which has been in existence since the 1950s. The discrepancy arises because, although both systems utilize the same underlying credit data, they employ distinct algorithms to process and calculate the scores.
2. Multiple Credit Scoring Systems
The analogy of measuring shoe sizes across different regions serves as a vivid illustration. Similarly, credit scores, despite originating from the same credit data, can vary significantly based on the scoring model used. FICO scores are particularly crucial in lending decisions, influencing nearly 90% of them.
3. Credit Bureaus and Different FICO Scores
The article touches on the importance of understanding how the three major credit bureaus (Equifax, Experian, and TransUnion) use FICO scores. Notably, different FICO scores are applicable for various types of loans. For instance, Experian considers FICO Auto Scores for auto lending and FICO Score 2 for mortgage lending.
4. Consumer Misconceptions
The narrative provides real-world examples of borrowers who were either overconfident or unduly worried about their Credit Karma scores, only to discover a different reality when their credit was pulled by lenders. This aligns with the broader sentiment on social media platforms, where users share experiences of Credit Karma scores deviating significantly from the scores reported by lenders.
5. Trusting Mortgage Lenders
The article emphasizes the importance of trusting the credit pulled by the lender when seeking a mortgage. Mortgage lenders typically obtain all three credit scores and consider the middle one. This dispels any confusion arising from relying solely on one credit score, especially if it's from a platform like Credit Karma.
6. Credit Karma's Utility
While cautioning against relying on Credit Karma scores for mortgage decisions, the article acknowledges the platform's usefulness for credit monitoring. Credit Karma can effectively alert users to new accounts or potential fraudulent activities, allowing for timely intervention.
7. Final Thoughts and Company Introduction
The article concludes with a reminder of the importance of being informed about one's credit score, irrespective of the occasional discrepancies. The company, Homestead Financial Mortgage, is positioned as a reliable and transparent mortgage lender that pulls credit, provides accurate scores, and works diligently to secure loans for its clients.
In summary, this comprehensive overview illuminates the intricacies of credit scoring, urging borrowers to look beyond the appealing facade of Credit Karma scores and to trust the credit pulled by mortgage lenders for significant financial decisions.
