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Todd Talbot
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Credit Karma vs The Real World

Recently I spoke with a client who I have been working with for about one year.  She is working towards clearing credit issues to increase her credit score to the minimum requirement of 620/640 for the available down payment assistance programs.

She informed me her score exceeded the required minimums.  I gave her the number for the preferred lender I work with on the down payment assistance programs, so she could begin the prequalification process.  Low and behold, her credit score did not exceed the required minimums and the lender informed her of a further wait for the credit reporting agencies to update my clients recent credit activity, before mortgage qualifying could occur.

Here’s where the confusion lies:

When Credit Karma or similar companies give you a credit score, more than likely they are pulling that score from one of the 3 credit reporting agencies which are: Experian, Equifax and TransUnion.  When you apply for a car loan, or credit card or your employer or insurance agency look at your credit for references purposes, these companies usually look at one score.  The qualifying guidelines are more lax for approval.  However, that is not the case when applying for a mortgage loan.  The mortgage guidelines are stricter and require that scores from all 3 reporting agencies are obtained and then the median score will be used for mortgage qualifying purposes.  If you are applying jointly with a husband or co buyer, then both scores for both parties are considered from the 3 reporting agencies.  

For example:

  • John and Jane Smith are applying for a mortgage loan.
  • John’s 3 credit scores from the aforementioned reporting agencies, are 730, 748 and 721.
  • Jane’s 3 scores are 685, 711 and 716.
  • The median score for John is 730 and for Jane is 711.
  • If John is the only applicant on the loan the credit score used to determine qualification would be 730.
  • If Jane is the only applicant on the loan the credit score used to determine qualification would be 711.
  • If they are applying as joint applicants, the score used would be the lower of the two median scores, 711.

The bottom line is, Credit Karma and similar companies serve the purpose of giving consumers a “good idea” of what their credit score range is.  In no way should that score be assumed it will match what is needed for mortgage qualification guidelines. These qualifying guidelines apply for all standard mortgage loans; as well as, grant based down payment assistance type loans.

When strategizing to buy a home, it is best to speak with an industry professional; if possible, 6-9 months before your intended purchase.


Location: Blog >> Credit Karma vs The Real World

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