2025 MORTGAGE CREDIT SCORES

Valiant Credit Services
Apr 22
5 min read

Most lenders use FICO® scores from all three credit bureaus when evaluating your loan application. Your score will likely be different for each credit bureau

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If you're using a free credit monitoring service and believe you know your credit score, you might be surprised when you apply for a loan and your mortgage lender provides a different set of credit scores. This discrepancy occurs because lenders use various credit scoring models. In fact, there are 16 different FICO Scores, each with numerous variations.

Each credit scoring model interprets the information in your credit profile differently, aiming to give lenders the necessary details to approve your home loan application. Most mortgage lenders use FICO Credit Scores 2, 4, or 5 when evaluating applicants.

Mortgage lenders offering conventional mortgages must use a FICO Score when underwriting your loan application for approval. The specific scores used by each bureau are as follows:

- Experian: FICO® Score 2, or Experian/Fair Isaac Risk Model v2

- TransUnion: FICO® Score 4, or TransUnion FICO® Risk Score 04

- Equifax: FICO® Score 5, or Equifax Beacon 5

All these credit scoring models are from FICO, the company used by over 90% of lenders. It's crucial to know which model your lender will use, especially if you're applying for a loan with a minimum credit score requirement, such as an FHA or VA loan.

If you're applying for such a loan, you'll need a mortgage score that meets or exceeds the requirement. Even if another scoring model qualifies you, it won't matter if your score under the lender's system doesn't meet the requirements.

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Why Are There Different FICO Scores?

There are many different FICO scoring models, and there are also credit scoring models not provided by FICO, like the VantageScore. Each credit score aims to provide lenders with a quick way to assess a borrower's creditworthiness. The variety of models exists because each is designed to help lenders determine credit risk.

Each scoring model helps lenders assess credit risk for different types of debt. For example, an auto lender uses the FICO Auto Score model for car loan applications. Similarly, credit card lenders may use the FICO Bankcard Score, which focuses on credit utilization ratio. While scores under each model are generally similar, they can differ, so it's vital to know which model your lender uses, especially if you're close to qualifying for a loan. Besides credit history, lenders consider factors like income and debt-to-income ratio when evaluating loan applications. Your income is crucial for assessing your ability to repay the loan, while a lower debt-to-income ratio indicates more financial flexibility for new credit accounts.

Ways to Boost Your Credit Score Before Applying for a Mortgage

Improving your FICO score can greatly simplify the home buying process if you're planning to purchase a home. Regardless of the credit scoring model used by your lender, there are basic steps to enhance your credit score.

Remember, a lower credit score can make qualifying for a loan more challenging and affect the interest rate charged by the bank or credit union. By boosting your credit score, you can potentially make your mortgage more affordable, facilitating homeownership.

Your FICO credit score is determined by five factors:

• Payment history

• Amount owed (including credit utilization)

• Length of credit history

• Types of credit

• New credit

Every action to improve your credit score will ultimately lower your mortgage interest rate, making it worthwhile to enhance your credit.

Boost Your Available Credit

Lenders consider various factors when evaluating a borrower's creditworthiness, including the credit utilization ratio. This ratio compares the borrower's debt, specifically credit card debt, to their overall credit limits.

For example, if you have a credit card with a $2,000 balance and a $4,000 credit limit, your credit utilization would be 50%. Lenders prefer borrowers with lower credit utilization, as maxing out credit cards indicates a higher risk of default.

A credit utilization of 30% is considered good, but less than 10% is even better. To optimize your credit score, it's advisable to have no more than $100 outstanding on the statement date for a card with a $1,000 credit limit.

One of the simplest ways to improve your credit score is by reducing your credit utilization ratio. This can be achieved by paying down debt or increasing your credit limits.

If you have a credit card with a good payment history, most card issuers will likely be open to granting a credit limit increase. You can usually request this increase through your online account.

Requesting a credit limit increase carries no risk. The worst that can happen is the lender saying no, leaving you in the same position. In the best-case scenario, you could receive a significant credit limit increase, lowering your credit utilization ratio and boosting your credit score.

Before Applying for a Major Loan, Like a Mortgage, Review Your Credit Report

If you want to increase your credit score by 200 points, one of the easiest ways is to find and correct any errors.

You might be surprised to learn how often credit bureaus make mistakes and include incorrect information on your report. By obtaining a copy of your report, you can identify these errors and dispute them.

You might find an account that doesn't belong to you or records of a missed payment you didn't actually miss. Each credit bureau has its process for disputing errors. If you find a mistake on your credit report, contact the credit bureau and dispute the error. Removing a missed or late payment from your credit report can significantly improve your credit score, increasing your chances of getting a favorable mortgage rate.

Avoiding unnecessary hard credit inquiries is important. When you apply for a conventional loan or credit card, the lender requests your credit report from one or more credit bureaus, resulting in a "hard inquiry" notation on your report.

Each hard inquiry can lower your credit score by a few points. Multiple hard inquiries within a short period can seriously harm your score, as it suggests financial difficulties.

When considering a large loan, especially a mortgage, it's best to minimize unnecessary hard inquiries.

The good news is that most credit scoring models understand rate shopping. If you apply for a mortgage from multiple lenders within a brief timeframe, typically a few weeks, most models will treat those applications as a single inquiry.

In conclusion, your FICO score significantly impacts the cost of buying a home. Taking steps to improve your credit score can lead to better mortgage terms.