The Leapfrog Effect

Have you ever wondered how lenders choose which credit score to consider?

Brenda Robinson
Financial Adviser in Easton, PA

The Leapfrog Effect
October 14, 2015

Have you ever wondered how lenders choose which credit score to consider?After all, there are three major credit bureaus, each of which uses a unique set of data to calculate your score. This means that there are three different scores lenders can turn to when considering whether or not to offer you a loan or mortgage. Luckily, however, there is a predictable pattern that lenders use when selecting a score – and we want to share it with you.

Mortgage companies will consistently choose the “middle score.” For instance, if Suzie Good-Credit has a score of 675, 690, and 725 (from TransUnion, Experian, and Equifax, respectively) and she applies for a loan, most lenders will select the score of 690, as it falls in between the other two. However, with some awareness and planning, Suzie can actually influence which score they select. We call this pattern “The Leapfrog Effect,” as it allows a growing score to “leap” over another.

Suzie Good-Credit only needs to worry about improving one of her lowest two scores–in our previous example, these were her Experian and TransUnion scores.

If Suzie’s Experian score of 690 were to go up to 730, it would “leap” over her Equifax score of 725, making the Equifax score of 725 the new score of choice for Mortgage companies.

Alternately, Suzie could work on improving her TransUnion score of 675. If Suzie were to use Rental Kharma to report her past two years of rent to TransUnion, she could see major score growth on her TransUnion credit report. For the purposes of this example, let’s say Suzie’s TransUnion score grows from 675 to 720 – a jump of 45 points! This would make her TransUnion score of 720 her new “middle score.”

In both of these scenarios, Suzie Good-Credit only needs to focus on improving one score if she wants to receive a loan or a better interest rate from mortgage companies.

If you are interested in buying a car, however, these rules don’t apply. Auto companies are unique in that they always consider your highest score. So when Suzie Good-Credit decides to purchase a new convertible, they will finance her based on her high score of 720. Good for Suzie!

As of right now, Rental Kharma works with TransUnion. When we add your rental history to your credit report and build your TransUnion score, this new and improved score can leap past another and give lenders a higher number to utilize for underwriting. And that’s good for you!

Leaping Frog Effect

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