FREE CREDIT REPORTS – THEIR
Updated: June 4, 2018
Credit remains a major issue when one is applying for a home loan. Free
credit reports are promoted in the media as well as by credit card companies
but there is a question regarding their reliability.
Here is some information regarding the current credit reporting system. The
FICO scores (the ones acquired from the tri-merged credit report used by
lenders) use a different scoring model than the free reporting systems. While
the latter have recently adopted systems that try to more approximate FICO
scoring, they still often use a Vantage or Transrisk
program that frequently varies from FICO scores. The only scores that lenders
will accept are the FICO scores.
Even the three repositories that report FICO use slightly different models
which weigh blemishes differently. For this reason, for some people, Credit
Karma will appear to give a higher score over some FICO scores while others
will experience the reverse. To further complicate the process, Fannie Mae introduced
in June, 2016 a “trended data” element to the scoring process. The program was
designed to provide a snapshot of the borrower’s revolving credit payments.
Borrowers were be evaluated based upon whether they pay off the entire credit
card debt monthly or make minimum payments and carry a balance. The assumption
was that the applicant that pays off the full credit balance monthly demonstrates
a more willing and able mortgage loan borrower. There were questions regarding
the program and it has yet to be fully implemented for all credit reports but
the repositories have not given up on the idea.
Each repository calculates a score based on the information reported to them
– not all info is reported to all repositories. Thus the weight of a blemish to
one repository with less “good” credit having been reported will affect the
score in a more dramatic way.
The free scores are good for tracking credit even if they have become, in
some cases, less reliable when compared with FICO scores. They used to be a
better consistent barometer of scoring. Acquiring a free score or scores may
provide at least an idea of one’s credit profile and provide guidance to a loan
officer regarding the advisability of acquiring a three-merged report for any
specific loan applicant.
Errors on reports, unrelated or inaccurate credit accounts and creditor
failure to report paid or corrected accounts are only a few of the frustrating
elements accompanying credit reports. Home loan lenders want borrowers to have
used but not to have abused credit. Most lenders require a minimum number of
“lines of credit”. Thus, paying cash for all one’s purchases typically results
in not having developed a credit score and possibly being ineligible for a home
Given the confusion and frustration that can accompany credit reports,
potential home buyers are urged to consult their loan representative prior to
proceeding to any home purchase. Being prepared well ahead of time is the best
way to avoid disappointment.