Credit score is important; make sure it’s your FICO score

You could pay more for your loan if you are checking the wrong credit score

The purchase of a house is a complicated process and not one that is easily understood by people who are not in the real estate or lending business. It involves banks, cities, counties, appraisal companies, title companies and often, lawyers. It’s not for the squeamish, and it’s not easily understood. There’s a lot of preparation that needs to be done before you can buy a home. The more you understand it ahead of time, the better.

One thing that is becoming increasingly clear to prospective buyers is the importance of having a good credit score when it comes time to apply for a loan. Your credit score is a number, usually between 300 and 850, that represents, at a glance, your entire credit history. At the low end, you have either poor or damaged credit. At the high end, you have good credit and will qualify for the lowest rates from a lender. Most people know this from, among other things, the incessant commercials on television telling you to go to some Website to see your score. With that in mind, many borrowers head right for the Internet so that they can start to repair their credit.

What these commercials and the associated Websites don’t necessarily make clear is exactly which credit score you are buying. In addition to Fair Isaac’s FICO score, there are a number of different scoring models in use, and each of the credit bureaus has their own proprietary system of creating a score. Recently, the three bureaus also created a newer scoring system called VantageScore that will be used by all three bureaus. While each of these systems, and there are many, works in approximately the same way, the all use slightly different formulae to determine the score. As a result, checking your score in several different places will probably yield several different results.

This can be a problem for home buyers, who often fail to understand that lenders almost universally use the Fair, Isaac and Co. FICO system. As a result, many buyers go to a lender having checked their “credit score” and assuming that theirs is healthy. Then the lender reports that their score is actually lower than they thought and that they will not qualify for the lowest interest rate. Some borrowers assume that the lender is simply “trying to pull something on them” when it may actually be a genuine difference in scoring systems. Differences or not, the only thing the lenders care about is the FICO number.

What does this mean for buyers? It means that when you go online to check on, and pay for, your credit score, you need to make sure that the score you are buying is, in fact, your FICO score. There is no point in examining, paying for, or trying to improve some other number when the only one that your lender will care about is the FICO number. There are many Websites that offer financial information for sale. Before you pay for it, make sure that the FICO score is the one being offered. If you have doubts, you can always get it straight from the source - Fair, Isaac offers the FICO score from their own site at www.myfico.com.