“Check your credit score before applying for a major loan,” is the advice you’ll see here at About.com Credit/Debt Management and other personal finance blogs around the web. Only, when you actually apply for the loan, the lender’s credit score is very different from the one you accessed at home. What gives?
The Credit Scores Lenders Use
The score you pulled from myFICO, the credit bureaus, or whichever third-party was an educational credit score. These scores are provided just to give you a perspective on your credit standing. They’re not the scores that lenders actually use to approve your application.
On top of that, you likely purchased a generic credit score, one that covers a range of credit products. Creditors and lenders use more specific industry credit scores that are customized for the type of credit-product you’re applying for. For example, auto lenders typically use a credit score that better predict the likelihood that you would default on an auto loan. Or, your credit or lender might also use a proprietary credit score that’s developed for use by just that company.
The majority of lenders most use the FICO score, but even the score you receive through myFICO.com is different from what your lender sees. Some lenders also use the VantageScore, but again, their version is different from yours.
As a consumer, you don’t have direct access to whichever credit score your lender checks when you make an application. The score the lender pulls might differ from the one you used sometimes by several points, possibly enough to disqualify you from the best interest rate or maybe enough to have your application denied.
Credit Report Discrepancies Lead to Different Scores
Changes to your credit report might also explain major variations. If it’s been several days or weeks since you accessed your credit score, changes in your credit report data might lead to a different credit score. And if the score you pulled is based on one credit report and the lender’s is based on another, there will be differences due to differences in data between the two reports. Or, the score the lender used might be based on all three of your credit reports.
Lender-Required Credit Score Disclosure
If the lender denies your application or approves you with less favorable terms because of your credit score, then they’re required to send you a copy of that credit score. If you’re applying for a mortgage, the lender must provide you with a copy of the credit score used to qualify you for the loan.
Remember that your credit score is based on your credit report. Before applying for a loan, review your credit reports to be sure the data on each of them is accurate. Take care of past due balances and errors before you apply for the loan to be sure your credit is in the best shape possible.
Yes, it’s good to check your credit score before a loan application to see where you stand. But, don’t get your mind set on a specific interest rate or even on guaranteed loan approval based on an educational credit score. Use the score to gauge your general credit rating and don’t forget that lenders consider other factors besides your credit.