Some people are told that if they want to realize the dream of purchasing their own home, they need to build a strong credit history and high credit score. Being approved for a mortgage is thus one of the reasons to make credit card deals and start a credit file. Purposeful credit cardholders try to follow all the rules of credit cad use and display discipline to achieve the right credit score but in many cases all their efforts seem to pass in vain.
Yes, sometimes the credit score you worked for is not exactly what it should be after several years of regular monthly payments and reasonable credit debt ratio. Why does it happen? What have you done wrong?
Credit users commit many mistakes in credit card management that result in damaged credit rating and unfavorable credit scores. Many people know where they failed and a low credit score is not a surprise for them. But when you remember no defaulting and there is no obvious reason for the mortgage lender refusal, you feel mistreated.
Do not hurry with conclusions. The case is explainable, though a confusing one. Our intention to through light on the matter is dictated by one of our readers' letter with complaints about the credit score confusion and the mortgage lender's disapproval as a result.
Jessica made her fist credit card deal at college when she received the offer together with one of those T-shirts. Unlike most of her pals she managed to stand the temptation of maxing out her plastic for entertainment and avoid falling into debt. She was one of the lucky few who graduated with a favorable credit rating and could hope to be approved for a mortgage loan.
Jessica was confident in her good score which she bought from one of the credit bureaus but she ran into a refusal. Let's analyze the situation.
The thing is credit consumers and lenders are provided with different scores. Credit bureaus, issuing the scores have yet another vision of them and all this cannot but cause serious confusion when it comes to applying for new credit.
The different vision of credit scores isn't unfounded. Credit card companies and other lenders, credit bureaus and customers themselves look at the scores from their own perspective as they use the scores for their own purposes.
Credit consumers apply for the credit score to see if they can be approved for the lower rates credit cards or prime mortgage or are eligible only for subprime rates which are generally notable higher.
Creditors, mortgage lenders included, use the scores to determine the credit risk of the borrower, that is, how likely he or she is to make late payments.
Credit bureaus, on their part, sell scores to credit cardholders to make money.
That's a whole business and that's where the catch is! Credit card bureaus are now calculating the scores on a basis different from that of mortgage lenders. And while almost every lender in the mortgage business uses a FICO score as basis, the bureaus give priority to the new VantageScore system.
Taking the scale of the VantageScore which is 501 to 990, credit consumers with FICO scores (300-850) appear to be less eligible for a low rate loan.
With her VantageScore of 700, Jessica was happy to assume she referred to the category of prime mortgage consumers. But the true FICO score was actually 594 and that's the number the mortgage lender saw. Thus, the woman didn't qualify for the low rates she wanted.
Not all mortgage lenders disclose what score system they use. So when a person applies for mortgage with a VantageScore, the lender - on the grounds of the FICO - has all the legal rights to charge him subprime loan rates.
Most customers and mortgage lenders claim that credit bureaus are bilking by not advertising in big letters that VantageScore won't help much in applying for mortgage. These scores are just meaningless as lenders will never adopt them.
FICO score is much more accurate and reliable as compared to the VantageScore which is marketed by credit bureaus to establish new business.
Hopefully, Jessica's story will make mortgage seekers more careful about what they buy from the bureaus and help them avoid the trap and bitter frustration coming from it.
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