“I don’t get it. I checked my score through Credit Karma before I applied for a mortgage, and now my score is lower? What’s going on?”

We can’t tell you how often we get this question. A lot of our customers monitor their credit scores for free using Credit Karma. When they go to apply for a mortgage or another type of loan, they are then shocked when their score is not as high as they expected.

In worse case scenarios, this can even lead to a customer being turned down for a loan. And if there is an approval, it can come at the cost of higher interest.

Here is Why Your Credit Karma Score Can Be Misleading

A lot of customers do not realize two important things:

1-Each of us has many credit scores, not just one.

2-Different data can be used to calculate scores from different bureaus.

Both of these factors can lead to variations.

Although many credit scores exist, the most important ones are FICO and VantageScore.

Credit Karma itself has attempted to explain the differences between FICO and VantageScore credit scores here.

On that page, Credit Karma says, “The model used for credit scores on Credit Karma is VantageScore® 3.0,” adding, “While VantageScore® credit scores aren’t used as widely as FICO® scores for credit decisions, they can still give you a good idea of where your credit stands.”

Indeed, when you apply for a mortgage, it is your FICO score, not your VantageScore, that lenders will look at to make their decisions.

Another factor that is helpful to know about is the difference between how credit unions and banks handle credit scores versus how mortgage brokers do.

If you try to apply for a home loan through a bank or credit union, they will often require that your score be 660 or above.

But if you apply through a mortgage broker, you may have an easier time qualifying, since many lenders are willing to offer customers loans who have credit scores below 660.

FICO vs. VantageScore

You might be wondering what the differences are between these two types of credit scores.

FICO scores are calculated like this:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• New credit: 10%
• Credit mix: 10%

Here are the possible FICO credit score ranges:

• Exceptional: 800+
• Very good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Poor: 579 and below

VantageScore does not provide exact percentages for the factors it weighs. Instead, it expresses the weights like this:

• Payment history: extremely influential
• Age and type of credit: highly influential
• Percentage of credit limit used: highly influential
• Total balances and debt: moderately influential
• Recent credit behavior and inquiries: less influential
• Available credit: less influential

Possible VantageScore ranges include:

• Excellent: 750 to 850
• Good: 700 to 749
• Fair: 640 to 699
• Needs work: 300 to 639

As reported by CNBC, a lot of borrowers are frustrated when their FICO score turns out to be lower than their VantageScore as reported by Credit Karma.

What is the Best Way to Use Credit Karma?

Credit Karma does not tell you what your FICO score is, and you should not rely on it to gauge the score a lender will check when you apply for a mortgage.

But it is a free tool, and it can still be useful in the following ways:

• With Credit Karma, you can get a general idea for your score. If it is really low, for example, there is no reason to expect your FICO score will be high.

• You can view trends in your score—whether it seems to be improving or declining over time.

Since you now know the differences between FICO and VantageScore in terms of how factors are weighted, you also can make some educated guesses about your FICO score.

For example, let’s say you have a pretty good credit mix. That will reflect well in your VantageScore, since that factor is “highly influential.” But as it only accounts for 10% of your FICO score, you can guess your FICO score might be lower, all other things being equal.

Still, that is not a guarantee you will be right. The only way to know your FICO score is to check it.

So, feel free to use Credit Karma to monitor your overall credit health—but do not make assumptions about your FICO score.

Instead, you should look up your FICO score before you attempt to apply for a mortgage. In fact, you can purchase your credit score directly from the three bureaus.

Other options might include checking your score through your bank or credit union, or through certain credit cards.

There is also a program called Discover Credit Scorecard that is available to customers and non-customers alike for free.

We Can Answer All Your Questions About Your Credit Scores

Still having a hard time navigating the world of credit scores and credit reports? We would be happy to answer your questions and give you pointers for how you can raise your score before you apply for a mortgage. This is all part of our pre-application counseling service where we review your scores and strategies for improvement.

Please give us a call at (317) 255-0062 to speak with an expert now.