Home buyers need to check two scores

DEAR MR. MYERS: We recently applied for a home-equity credit line, and the lender understandably ordered a credit report on us. What surprised us, though, is that the report was from a company called VantageScore instead of FICO. What is VantageScore? Is it any different than FICO?

ANSWER: Until about 10 years ago, FICO — the credit-scoring system developed by California-based Fair Isaac Corp. in the 1960s — was the only source of credit-history information that lenders could rely upon when reviewing a prospective borrower’s loan application. But that all changed in 2006, when the three major credit-reporting agencies (Equifax, TransUnion and Experian) combined to create VantageScore, which they claim provides a more accurate picture of a consumer’s past credit history and ability to repay future debt.

FICO scores are still used by about 90 percent of lenders when they look at a mortgage or credit-card application. But many are also now using VantageScore: It’s utilized by 2,000 lenders nationwide, the company says, including seven of our country’s 10 largest banks.

Both FICO and VantageScore rate prospective borrowers on a scale from 300 to 850, with 850 being the best. One key difference between the two is that VantageScore largely bases its scoring on a consumer’s last two years of borrowing and repaying debt. FICO 8, the most widely used version, looks back only six months.

Another important difference is that VantageScore, unlike FICO, factors in recurring debt — rental payments, monthly utility bills and the like — when compiling a consumer’s overall score. That’s especially important for younger borrowers who have never owned a home before and don’t have a lengthy credit history.

Alas, when you apply for a mortgage or any other type of debt, you don’t get to pick which scoring system the lender will use. So, it’s a good idea to stay on top of both your VantageScore and FICO ratings.

Remember, too, that all Americans are entitled to one free credit report annually from each of the three big credit bureaus. It’s a good idea to stagger those requests: Get a copy of your report from one bureau in the first four months of the year, another copy from a second bureau in the following four months, and the third toward the end of the year.

You can download your free reports from the federally approved or by calling 1-877-322-8228.

REAL ESTATE TRIVIA: The first credit reports began appearing in the late 1800s, when merchants began sharing information about a consumer’s payment history with each other.

DEAR MR. MYERS: The sink in one of our bathrooms drains very slowly. Two of the plumbers we called for bids quoted a flat-fee price to fix the problem, but the other two want an hourly rate. What’s the better choice?

ANSWER: Go for the flat fee. “Never pay by the hour,” says Roger Peugeot, a plumber and chairman of the Educational Foundation of the nonprofit National Association of Plumbing, Heating and Cooling Contractors, 800-533-7694.

“You don’t pay by the hour to have your yard mowed or to have your house painted,” says Peugeot. “Why do it for the plumber?”

Peugeot notes that many clogged drains and toilets can be cleared with an inexpensive plunger and a bit of elbow grease. But if that doesn’t work, he says, that’s when “you really need to call a plumber.”

DEAR MR. MYERS: We have one child and are looking to buy our first home. We hope to have two or three more children in the future, so a three- or four-bedroom house would be ideal. The problem is that, right now, the only homes in our price range have only two bedrooms. What are your ideas for people in our situation?

ANSWER: I assume that you don’t want to delay your home-buying plans until you can save more money to make a larger down payment on a bigger house. If that’s the case, you could buy a less-expensive two-bedroom home now and hope that values keep rising steadily so you can sell it later and use the profits to purchase the larger home that you desire.

Alternatively, if you’re lucky, you might be able to find a three- or four-bedroom “fixer-upper” in your chosen neighborhood today that’s in your current price range. Just make sure that it is structurally sound and needs only cosmetic repairs — and that you’re ready to do most or all of the work yourselves instead of incurring the high cost of hiring remodeling professionals.

A final (and more offbeat) option would be to buy a two-bedroom house that fulfills your needs now, but could be expanded as both your family and equity grow. But before you buy such a property, get bids from a few contractors to find out how much it would cost to add a new bedroom or two. Also check with local zoning officials to see if such an expansion would be allowed.

David W. Myers’ column is distributed by Cowles Syndicate Inc.