Like many others in the real estate and mortgage industry, I cringe each time one of the new credit score commercials are aired. I’m sure many of you have also seen these promotions. The scene typically opens with a credit applicant conferring with a loan officer or credit decision maker, confidently proclaiming a version of the following: “I’m more than qualified for this loan, Mr. Banker, because I’ve checked my credit score with Credit Café (or some similarly named credit monitoring service) and I have a 725 mid score, so the only thing you should be asking is what color I want, and if there is anything else you can do for me.” Yes, it’s a bit over the top, and often misleading. Granted, if you have a 725 score you’ve done a pretty good job of managing your credit profile, but it doesn’t automatically give you carte blanche when it comes to obtaining a home loan.

In fact, when seeking a mortgage the 725 mid score may not be enough. What the TV ads don’t say is that lenders also want to see credit depth. Credit depth is a minimal acceptable level of positively reported credit and debt management experience. For example, on a particular loan product, the lender’s underwriting guideline may call for a minimum score of 700, but that minimum score is virtually always coupled with a depth requirement that calls for a minimum of 3 open accounts, reviewed for 24 months or longer, with at least one account having a minimum balance of let’s say, $5000. That’s why the score alone can be misleading and shouldn’t be used to give the impression that a potential borrower qualifies, when at best it simply means they’re eligible.

So why is there a credit depth requirement? To make sure that substance accompanies the shine. For example, let’s assume that Ann and Arnold Public are 57 years old and were married 35 years ago. Arnold is an engineer and Ann is a professor of music. The Public’s are also parents to a set of twins, Daniel and Dana. They bought their first home in 1981, a $280,000 condo in San Francisco, and obtained a 15 year mortgage. They paid off the condo in 1997 and purchased an $800,000 home in Forest Knolls. The home in Forest Knolls was also paid-off in 15 years. During their 35 year marriage they have also bought and paid for eight (8) vehicles, and paid-off another $6,000 per year in revolving debt. Three years ago the state of California found itself in financial exigency and could not pay all of its public employees, so Ann lost her job as a professor. Now living on one income, Ann and Arnold got behind on a few bills and their mid credit score dropped to 630. Ann has finally returned to work and the Public’s have started to rebuild their credit rating.

While Ann & Arnold were struggling through the downturn, their twins, Dana and Daniel were enrolled in college. Dana applied for a student MasterCard as a freshman and was approved. Dana is now a junior. She’s had her MasterCard for 22 months, has an $800 limit, and always pays as agreed (the minimum payment is $16 per month). Dana’s credit score is now 705, seventy-five points higher than her parents. That’s right, Dana has managed to pay $16 per month for 22 months–her total financial history–and repaying $352 has gotten her a 705 score. Her parents, on the other hand, have borrowed and fully repaid over $1,000,000 in mortgage loans, $310,000 for automobiles and $200,000 for revolving debt, totaling over 1.5 million dollars through 35 years of marriage. In doing so they’ve proven repeatedly that they’re seasoned users of credit and responsible managers of debt. Unfortunately, their credit score, which is essentially a financial snapshot, doesn’t currently reflect their true nature as financial consumers.

This is why credit scores alone can sometimes be deceptive. Attractive scores don’t always equate to substance, buying power, or even creditworthiness. Likewise, scores that are less than stellar don’t necessarily mean that a borrower is a poor credit risk. Yes, Dana the daughter has a perfect credit record, in the same sense that a 15 year old who received their DMV Learner’s Permit this morning has a perfect driving record. But, as they’d say in Texas, she’s all hat and no cattle. Again, that’s why lenders want to see credit depth. Ann and Arnold, even with the subpar credit scores, are a much better risk. They have substance, experience, and consistency that spans almost four decades.

If you’ve got the credit scores with the depth to match, and are so inclined, put on your peacock feathers and strut like there’s no tomorrow. Otherwise, be wary of claims suggesting all you need is a particular score and the lending world becomes your oyster—it may become your foil.

-F.R. RES