It's been a busy time on the credit front for our household. Our credit score has risen during the past few months because we paid off a few bills. The result of a better credit score is not surprising, but what took us off guard was that our credit scores rose so strangely.
As much as we can figure out, my score improved 5 to 16 points, depending on which credit reporting agency you use. My wife did much better: Her score rose between 33 and 45 points.
Less debt and lower monthly payments should clearly result in a higher credit score, but why should the increases be so uneven? Plainly, the credit bureaus are looking at the same facts but using different measures to evaluate what they see.
Credit scores are enormously important in the financial process, but how they are derived and how they are used is foggy. The same data produces different results, and those different results can alter the ability of borrowers to get financing, for better or for worse.
In the case of VA loans, the government does not have a credit score requirement. This is because the VA guarantees loans, but does not actually lend money. Lenders provide the cash and use those credit scores.
VA lenders would generally like to see a credit score of at least 620. This is not a high bar. The best publicly available credit scores we have come from the FHA program, and in August, the typical FHA borrower had a score of 696.
The catch is that credit scores are a potential deal breaker for some borrowers, and that's the reason to keep on top of credit scores and avoid last-minute surprises.
While borrowers cannot control how credit scores are formulated or the specific credit score which is acceptable to a given lender, they can do a lot to assure that their score as high as possible.
First, it makes sense to check credit reports with some regularity. A good credit report will result in a good credit score.
Second, if there are items in your credit report which are factually incorrect or out of date contact the credit reporting agency and ask for a correction. This is your right under the Fair Credit Reporting Act.
Also, be careful with passwords and Internet connections. Identity theft is a real concern, and it's something that can ruin your credit status.
Meanwhile, at the Miller household, my wife explains that she's a vastly better credit risk than I am. I disagree, of course, but she has the numbers on her side.