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Which Credit Score Do Mortgage Lenders Use?

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

Have Questions About your credit score? Schedule A FREE CONSULTATION with one of our Credit Consultants.

If you're using a free credit monitoring service and you think you know your credit score, you might be surprised when you apply for a loan and your mortgage lender comes back with a different set of credit scores. This can happen because lenders actually use many different credit scoring models. In fact, there are 16 different FICO Scores with numerous variations of each score.


Each credit scoring model interprets the information in your credit profile differently, with the goal of providing lenders the necessary information to approve your home loan application. When assessing applicants, most mortgage lenders use the FICO Credit Scores 2, 4, or 5.


Mortgage lenders who offer conventional mortgages are required to 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 of these credit scoring models come from FICO, the company that over 90% of lenders use. It's important to know which model your lender will use because you might be applying for a loan that has a minimum credit score requirement, such as an FHA loan or VA loan.


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

So, why are there different FICO Scores?

Well, there are many different FICO scoring models, and there are also credit scoring models that aren't provided by FICO, like the VantageScore credit score. Each credit score aims to accomplish the same thing: provide lenders with a quick way to assess a borrower's creditworthiness. The reason for the variety of models is that each one is designed to help lenders determine the credit risk.

Each scoring model is designed to help lenders assess the credit risk for different types of debt. For instance, an auto lender will use the FICO Auto Score model when evaluating car loan applications. Similarly, credit card lenders may rely on the FICO Bankcard Score, which emphasizes credit utilization ratio. While the scores you receive under each model will generally be similar, there are instances where they may differ. Therefore, it's crucial to pay attention to the specific model used by the lender, especially if you're on the verge of qualifying for a loan. In addition to credit history, lenders also consider factors like income and debt-to-income ratio when evaluating loan applications. Your income plays a significant role in determining 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

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

Keep in mind that a lower credit score can make it more challenging to qualify for a loan and can impact the interest rate charged by the bank or credit union. By boosting your credit score, you can potentially make your mortgage more affordable, making homeownership easier to achieve.

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 you take to improve your credit score will ultimately lower your mortgage interest rate, making it well worth the effort to enhance your credit.

Boost Your Available Credit

Lenders take into consideration various factors when evaluating a borrower's creditworthiness, and one of them is the credit utilization ratio. This ratio compares the borrower's debt, specifically credit card debt, to their overall credit limits.

For instance, 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 can indicate 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.

Therefore, 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 that you've had for a while and have maintained 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, which would leave you in the same position as before. In the best-case scenario, you could receive a significant credit limit increase, lowering your credit utilization ratio and giving your credit score an immediate boost.

Before you apply for a major loan, like a mortgage, it's a good idea to 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.

For instance, you may come across an account that doesn't belong to you or records of a missed payment that you didn't actually miss. Each credit bureau has its own process for disputing errors. If you find a mistake on your credit report, make sure to 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 will request 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. Having 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 greatly impacts the cost of buying a home. Taking steps to improve your credit score can lead to better mortgage terms.

Have Questions About your credit score? Schedule A FREE CONSULTATION with one of our Credit Consultants.


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