Want To Buy A Home? 3 Things You Need to Know!
Updated: Apr 20
June 6, 2022
Ever wonder why you think you have good credit? However, you still don't qualify to purchase a home.
Well, you might be looking at the wrong credit score.
Now you may be thinking; there are only 3 scores to look at. How can I possibly be looking at the wrong score?
Another mistake you may have made was watching YouTube videos about how you can save money and boost your credit by not paying off old debt because it will "fall off."
While there is truth in this, it's misleading if you are making a home purchase.
You see, not paying off your past debt may not have affected your consumer credit score, but this did nothing for your mortgage lender's credit score.
All that time, you thought you were making serious moves and were on the road to homeownership.
No worries!
Before you completely throw in the towel, there's still time to adjust to get you ready for your goal.
Here are 3 things you need to know about your credit score before you purchase a home:
Monitor the credit score that lenders use to approve mortgage loans.
Pay off old debt.
Be patient; improving your credit is easier than you think.
Monitor the credit score that lenders use to approve mortgage loans
Now, you may be thinking, "I checked my score on Credit Karma, and my credit is 680 or higher, so I'm good." Think again because this is just a consumer credit score.
There're different credit models for different things you want to purchase. I know as if credit was not hard enough!!!
Ok, so you discovered you have a credit score of 680, and you applied for a home loan only to be told this isn't what the mortgage lender is seeing.
They're seeing a 610, which is not enough credit to get you much of anything, especially if you want a good rate, and you do!
Your first thought is this is some joke. But I am here to tell you this is not a joke, and you both are right about your score.
So here's what's happening.
If you're looking at your consumer score on any of the platforms like Credit Karma or your bank, you're seeing your consumer credit report.
This is great if you are trying to make a smaller purchase, like a car, or get a credit card.
However, there is a different formula that mortgage lenders use to determine your credit score. So what can you do to see what they see?
Invest in My Fico. I said "invest" because it will cost you a monthly fee to see all of your credit scores.
There are 3 different credit scores you get from the 3 credit bureaus, right? Well, it goes deeper than this.
Each lender uses a different credit model to give you a score from these different bureaus (Experian, Equifax, TransUnion).
Related Stories: "What Credit Score Do Mortgage Lenders See?"
For example, your consumer credit report from Credit Karma gives you scores from the 3 bureaus which work for credit card applications. Still, the car dealership uses a different model to determine your credit score.
On top of that, mortgage lenders use a completely different model from both credit card lenders and car dealerships. Tired yet?
So while you're looking at your consumer credit scores based on a certain model, the mortgage lender is looking at your credit score based on the model they use.
Crazy right!?
Fortunately, MyFico.com allows you to see all these scores. Once you see all these scores, you can focus on what you are trying to accomplish.
If you are trying to get a credit card or a small personal loan, then your 680 consumer credit score is perfect, but if you're trying to buy a home, your 610 mortgage credit score will not cut it.
Once you can monitor the credit score that mortgage lenders use, you can see the things on your credit report that are affecting that particular credit score.
Pay Off Old Debt
You may have been told, “Don’t pay off old debt,” by a credit repair professional or many YouTube videos discussing how to fix your credit.