What should you tell potential clients about the new FICO score model?

by 05 Sep 2014
By Tracy Becker
Special to MPA

This fall, the new FICO 9 credit score model will be offered online at the myfico.com website but will not be used by mortgage banks when buyers are applying for a home loan or refinance.  The myfico.com website is one of the only sites where consumers can purchase their FICO scores for each credit bureau report.  When individuals pull the FICO scores from this site it will not drop scores as third party credit reviews do, which can cause confusion.  When buying credit scores online, consumers are already overwhelmed since there are so many variations of scores that differ from the ones used by mortgage banks.  Even a difference of as little as 2 points could cause a loan denial or much higher pricing depending on the type of loan needed, so it’s important for consumers to know exactly what their score is.
Typically, when a consumer buys "a credit score" online and sees a good score (740 and above), they immediately assume they are in an excellent position and will be offered the best pricing on a mortgage.  However, the credit scores available online  can vary from a Vantage, Plus, Credit Karma, Trans Union, Equifax, FICO 8, or other score models. Unfortunately, most banks use a FICO 4 model, so consumers can find their actual scores to be 20-150 points lower than they expected. To make matters worse, it is next to impossible for consumers to purchase these scores, since the scores that FICO offers online are from the FICO 8 (and soon to be FICO 9) model.
This difference in scores causes frustration and disappointment for clients, as well as the possibility of being denied a loan or even having to start the whole purchasing process due to lower than expected credit scores.  Real estate and mortgage professionals need to inform their clients that until they apply for a pre-approval letter, they will not truly know what their FICO score is since it is unlikely they can find a way to access it on their own. Clients must be made aware that the FICO 4 model scores are almost always lower than the FICO 8 (and eventually FICO 9) model that is available to purchase online. 
To add to the confusion, the FICO 9 model does not tabulate medical collections and paid collections the same way as other models.  Since these delinquencies may not be considered in the FICO 9 model, the scores will appear to be much higher than those pulled by the mortgage banker.   Potential applicants should be informed to always get a copy of their credit reports very early on before shopping for a loan and review them with a credit expert for feedback, advice, and possible credit repair.
Tracy Becker is the president of North Shore Advisory, Inc. Her late4st book is Credit Score Power.


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