Credit Reports In The Real World

In this episode, Deborah “The Mortgage Queen” breaks down one of the biggest misconceptions in home buying, credit scores. She explains why the scores you see on apps like Credit Karma or your credit card don’t match what mortgage lenders use, and how different credit models can create major score differences. You’ll learn the key differences between soft pulls and hard inquiries, how lenders actually evaluate your credit, and why monitoring tools are helpful, but not definitive. She also shares insider strategies on improving your score quickly (especially with credit cards), common mistakes to avoid, and what upcoming changes like VantageScore 4.0 could mean for borrowers. If you're planning to buy a home, this episode will help you understand how to properly manage and prepare your credit.

00:00 – Welcome & Episode Overview
00:10 – Why Credit Scores Are Misunderstood
00:42 – Different Credit Models Explained
01:27 – Why Your Score Doesn’t Match the Lender’s
02:02 – How Lenders Use Credit Reports
03:03 – Hard Pull vs Soft Pull (Key Differences)
03:52 – What Credit Monitoring Apps Actually Show
05:05 – VantageScore 4.0 & Future Changes
06:43 – Common Credit Score Mistakes Buyers Make
10:40 – Fastest Way to Improve Your Credit Score
14:03 – Final Advice for Homebuyers

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Transcript

SPEAKER_00 0:00

Hey everyone, welcome back to All Things Home Loans, Credit, and Real Estate. I'm your host, Deb, the Mortgage Queen. So let's start learning. Hey, it's the Mortgage Queen. I just want to talk to you a little bit about the real world when it comes to credit reports. And I've been in the industry for over 30 years and been in the industry for I guess longer than some people have actually been born that are in this industry, but learned a lot over the years, so I want to educate just a little bit on my side. Probably one of the biggest misunderstandings in the credit report world is the models that sit out there. There's multiple models. Mortgage companies use a different model than what car companies use. Your Discover card, your Capital One card, your monitoring apps that you get through just your banking institutions. There's a whole bunch of different models, and they're all scored just a little bit differently. And I kind of wanted to explain where some of that comes from. And it's not that the credit re credit score you get from the Discard or your banking app is wrong. It's just not right when it comes to the mortgage world. Credit Karma, Experience App, Discover, Capital One, all of those. People come into my office and they say, Okay, I've been watching my credit score. It's a 760, and I pull it and it says 680. Ah, it's super discouraging to a client. But what we have to understand is I am pulling your credit report to help you buy a$400,000 house. This entity over here is just telling you what your credit score is, just to tell you what your credit score is. They're not giving you credit. They're not giving you a mortgage, they're not giving you a 30-year line of credit. And I think it's important to understand that those monitoring programs are there for a good purpose. Let me explain how we use it in our office. So we pull a credit report, and let's say the credit report is a 600, and we want to put us on a loan program that needs a 620 credit score. I'm gonna advise my client because I pulled a hard inquiry. I'm gonna advise my client, okay, let's pull your soft pull credit report. Let me explain the differences of those in just a second. So I pull hard inquiry, they pull a soft, and it's not necessarily gonna be the same score. We know that. But what happens is we can use that soft pull as our indicator of what our score is doing. So I pull a 600 score, I say, hey, pay off this credit card, hey, pay off this collection account because it's currently active, and they do that. We watch the credit score on the soft side increase, and that gives me the ability to watch when I should pull a hard inquiry. The the soft pull and hard pull, let me explain the difference really quick between those. The hard pull inquiry is actually showing an inquiry on your credit. You will actually see that inquiry that is in a line item of inquiries when we look at the credit report. A soft poll isn't going to affect your credit score. That's kind of what your credit re uh credit card companies do when they are doing a preliminary uh review of whether they want to lend you anything. So when you get those credit card offers in the mail, they've actually done in most cases, they've done a soft poll on your credit and said, Hey, these guys actually pay their bills on time. We're gonna offer them this line of credit and hope that they actually bite. So you'll get all those credit card offers in the mail. Uh opt-out pre-screen, uh, those are huge to be doing so that you can maybe shut out some of those things. But um on the apps, you're seeing a vantage score. It's it's kind of like hmm, a participation trophy. Good job, you've got credit, not quite the same score you're gonna pull when we do a model report. Um, it was actually built for monitoring. That's what its whole purpose was. It was built for the consumer to monitor what's going on with the credit report. It updates fast, it reacts with every little change and it updates quickly. And um, it's really good for spotting identity theft. Having some sort of credit monitoring is super important. I think it's really important. However, you do that, you just have to remember that it is not the actual credit report itself that we will be that that particular credit report will not be doing our uh uh ability to lend on a mortgage side of things. So looks good, makes you feel good in some cases, and you get instant gratification with certain things that change on your credit report. Um, there is some changes coming. The uh Vantage Score 4.0 is coming out, and I'll explain that just a little bit later. But uh it actually is out back in July. Fannie Mae and Freddie Mac actually adopted it, but it wasn't gonna roll out till this quarter, right now. And it's got an implementation process, and the lenders that uh are pulling credit, running it through those automated systems, they're they're actually rolling them out kind of slow. And I think there's just a little bit of a, in my opinion, this is my opinion, we've used this same credit model, the FICO two, four, I don't remember what they are. Let's see, FICO two, FICO four, FICO five, I think is what we use. And we've been using those for so long. Uh, it's kind of the can you teach an old dog to do new tricks kind of a thought process. But the Vantage Score 4.0 is gonna actually, it's kind of excited. It's kind of exciting because it's gonna pull in rent payments and it's gonna pull in um utility payments. I was trying to remember what else it does. More of, I guess more of a comprehensive view of what that credit report is rather than just a collection account that didn't get paid, a car loan that got paid on time. And it's just it gives us a little bit more of a picture of people who uh I guess for lack of better words, live on cash. Like you're making your rent payments, you're paying your utilities, but you're not getting any credit for that. Well, that's technically credit. You're paying your bills on time. So why are we not having that go into the algorithm to help us out? Um, the the mess that we have with uh credit karma, experience, transunion, equifax.com, those particular credit reporting models, the frustration that we have is consumers come in with the assumption that they already know what their score is and they've already pre-qualified themselves or unpre-qualified themselves. And this is the hardest thing that I deal with on my side of it is come into my office saying that you have a 750 credit score on your uh your soft poll credit monitoring that you're doing. I pull a 660. Yes, there could be that big of a swing. Well, a 750 score seems like a conventional program. 660 score is more of an FHA program. There's a lot of different things that go on when you're talking the difference between a conventional and an FHA, an FHA loan. And it gets discouraging to some because they want to be the cream of the crop, and and some homes don't qualify for FHA financing or realtors that aren't educated on what we can do to make FHA come around on a conventional home. Um, you know, they're marketing conventional because they don't want to deal with the repairs of FHA. The problem is a lack of knowledge of programs out there. We can turn pretty much any conventional home into an FHA loan. It's just a matter of working through the right loan product for that. So that's a little tangent we don't need to go on. But um I guess my advice to this is if you are serious about buying a house, fine, pull your credit score on a soft poll on your monitoring, keep track of that for the purpose of identity theft, uh, things that are not yours, things that you've paid off that you are not showing as being paid off, and being able to keep track of all that stuff is super, super critical. But when you're pulling those soft credit reports, if you notice that there are lower credit scores there, let me pull a credit report. Let apply for a loan, let me pull a hard inquiry, let's look at the big picture of it and make sure that we're actually create correcting things that should be corrected. Sometimes we don't want some things corrected, some things we don't want to restart the clock. And let me give you an example: a collection account. Uh, had a collection account from a utility bill that you moved out of your rental two years ago and hasn't reported for two years. You pay that off and it reports as a zero balance. It just updated a date. This I don't think the score's smart enough to see at some point it was not reporting two years ago with a$50 balance. Now, as of the most recent month, it's reporting again as a zero balance. It's not smart enough to see that it was a zero. All it saw was that it was a new active collection. And that is one broken piece of the credit reporting uh situation is you should be, I can't say not penalized, but there should be some sort of a gain for you updating a credit line to show a zero balance. And maybe if it hasn't reported for two years and then it reports as a zero, it just doesn't affect your score. It just fixes what's on the report. There's a lot of companies out there that claim that they can fix your credit report, and there are some ways to have things just come off the credit report. I would just task you with really doing your research of making sure that you vet a company that is going to do what they say that they're going to do. There's a company based out of California, I won't use any names because I don't want to get myself in any type of trouble with slander, but there's a company down in California that claims that they can do all of this stuff. I've seen so many people throw so much money away for this company and they haven't got anywhere. And as soon as I get we in that, like who's trying to fix your credit report? And they tell me who it is, and like, shut that crap down. Just shut it down. They're not gonna do it. They say they're gonna do all they're gonna do is continue to take your money and they'll fix things here and there so that they just can keep you, you know, dangle the carrot per se. Not okay. Um, there are a lot of little tweaks that we have learned in the mortgage industry that we can advise. Uh, my one advice is credit card balances. Your credit cards are your biggest moving factor the quickest when it comes to the to uh having your credit score update. So when we're talking, uh I can borrow$1,000 on my credit card and I owe$20 on it, that's actually gonna help your credit score. If I can borrow$1,000 and I maxed it out and I owe$990 on it, and that reports to my credit report, it's gonna tank those credit scores. It's gonna reduce your credit scores. But the coolest thing about it is you pay it down to zero, you pay it down to$10, you pay it down to$100, your scores are gonna increase as soon as it reports again. So credit cards are kind of a fun way to watch what the credit score can do. Like max it out, score goes down, reduce it down, score can go up. It's really, really cool to watch that. So we do watch for credit cards. And anytime you actually have one report that's higher than the credit balance available, so I owe a thousand dollars, or I can take out a thousand dollars and I owe a thousand twenty-five because you just happened to swipe it one more time and didn't really pay attention to what your balance was. Oh, higher than what you can take out in your credit limit, that's gonna hurt your credit scores big time. I would definitely advise against that. Um there are things on credit that we just want to leave alone, or at least get you into your home and then go through beating up those uh credit lines to get them reporting correctly, because then it takes some time for those scores to recover and you've already got into your home. But then going down the road, those things are off their credit report and taken care of. Um the big thing that I can just advise is be educated. Be educated on what your credit score is, but be prepared that a mortgage company is going to be a little bit differently. Uh, educate yourself on your credit score to the point that you know what's on there. Make sure what's reporting to your credit report is what's supposed to be reporting to your credit report. And don't be afraid to ask questions. If you have a soft cold soft poll credit report and you've got a line of credit that says, hey, what is this all about? How do I fix this? How do I get this taken off? How do I um how do I increase my credit score? This is my line of credit that I'm dealing with right now. Call us and let us help you. There are some things that we that we can't fix, obviously. Um, new collection accounts that are just brand new. Uh, we can't really get those off, but uh, we can definitely give you some advice on what to do on certain lines of those credit. Um on the on the whole theory of knowing what your credit scores are, walking into a mortgage company and saying, Hey, I deserve this because my score is that, it's a perfect attitude to have, but just be prepared that it could shift uh based off of the credit model that we are using. Now, with that being said, the credit model vantage 4.0 coming out, it's gonna be a slow implementation process. It's coming, and uh there are institutions that have already got it going. Fannie Mae, Freddie Mac, VA, all of them have acknowledged that they're going to accept those. It's just a huge change in our systems that we have to take advantage of all of the cool tech stuff out there to get those things fixed. So um I guess my word of advice is monitor your credit, make sure you know what's on it, make sure you know what's on it is reporting accurately, and keep track of it. But I will give you this word of advice. You will drive yourself crazy if you watch that credit report every single day. It'll drive you crazy. It absolutely will drive you crazy because this line will drop your score, this draw, this line will increase your score, this line will drop your score. And day uh day on and day on, you're gonna be like why my score is up, my score is down, my score is up. Just just don't, just don't check it monthly, make sure something that is just make sure that the stuff that's on there is supposed to be on there, but don't get so consumed by this that it drives you absolutely crazy. But um, my advice definitely monitor your score, keep track of those soft polls, turn on credit monitoring, and then I would definitely love to advise you to freeze your credit scores, and uh, I will teach you how to do that in a different episode. So um, anyways, just out here from uh mortgage queen standpoint, uh give you some education. And if you've got any questions, definitely feel free to DM me, feel free to email me. You can search Deborah Critdle, the mortgage queen, and you're gonna find my information. I'm very all over the internet. And uh, so good luck. Soft polls, hard pulls, difference of the two. Make sure that you know which ones uh which one's which, and make sure that you're paying attention to what's on your credit report so that you can be uh successful financially in the future and prep to buy a house. Thanks so much for listening. I really appreciate it. So stay tuned. We are gonna learn some more next time.