Which Credit Score Mortgage Lenders use?

Valiant Credit Services
1 hour ago
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 relying on a free credit monitoring service and believe you know your credit score, you might be taken aback when applying for a loan and your mortgage lender presents a different set of credit scores. This occurs because lenders utilize various credit scoring models. In fact, there are 16 distinct FICO Scores, each with multiple variations.

Each credit scoring model analyzes the information in your credit profile differently, aiming to provide lenders with the necessary data to approve your home loan application. Most mortgage lenders evaluate applicants using FICO Credit Scores 2, 4, or 5.

Mortgage lenders offering 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

*****2026 UPDATE: HUD Secretary Scott Turner announced today that the Federal Housing Administration will permit the use of VantageScore 4.0 and FICO 10T as eligible credit scoring models for FHA-insured mortgage underwriting.*****

All these credit scoring models are provided by 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 loan 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 your credit score, it won't matter if your score under the lender's credit scoring system doesn't meet the necessary criteria.

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Why Are There Different FICO Scores?

There are numerous FICO scoring models, along with other credit scoring models like VantageScore. All credit scores aim to provide lenders with a quick assessment of a borrower's creditworthiness. The variety of models exists because each one helps lenders evaluate credit risk differently.

Each scoring model is tailored to help lenders assess credit risk for various types of debt. For example, an auto lender might use the FICO Auto Score model for car loans, while credit card issuers might prefer the FICO Bankcard Score, which focuses on credit utilization ratio. Although scores from different models are usually similar, they can sometimes vary. Therefore, it's important to know which model a lender uses, especially if you're close to qualifying for a loan. Besides credit history, lenders also consider factors like income and debt-to-income ratio when reviewing loan applications. Your income is crucial for determining your ability to repay, while a lower debt-to-income ratio suggests more financial flexibility for new credit accounts.

Ways to Boost Your Credit Score Before Applying for a Mortgage

If you're planning to buy a home, improving your FICO score can make the process smoother. No matter which credit scoring model your lender uses, there are basic steps to enhance your credit score.

Remember, a lower credit score can make loan qualification harder and affect the interest rate offered by banks or credit unions. By improving your credit score, you can make your mortgage more affordable, easing the path to homeownership.

Your FICO credit score is based on five factors:

• Payment history

• Amount owed (including credit utilization)

• Length of credit history

• Types of credit

• New credit

Every effort to improve your credit score can lower your mortgage interest rate, making it worthwhile to enhance your credit.

Boost Your Available Credit

Lenders evaluate various factors when assessing creditworthiness, including the credit utilization ratio. This ratio compares a borrower's debt, particularly credit card debt, to their total credit limits.

For example, with a credit card balance of $2,000 and a $4,000 credit limit, your credit utilization would be 50%. Lenders prefer borrowers with lower credit utilization, as maxed-out credit cards can signal higher default risk.

A 30% credit utilization is good, but under 10% is better. To optimize your credit score, aim for no more than $100 outstanding on the statement date for a card with a $1,000 limit.

Reducing your credit utilization ratio is one of the easiest ways to improve your credit score. This can be done by paying down debt or increasing your credit limits.

If you have a longstanding credit card with a good payment history, most issuers are likely open to increasing your credit limit. You can usually request this through your online account.

Requesting a credit limit increase is risk-free. The worst outcome is a refusal, leaving your situation unchanged. In the best case, you might get a significant limit increase, reducing your credit utilization ratio and boosting your credit score.

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

One of the easiest ways to boost your credit score by 200 points is to find and correct any errors.

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

For example, you might find an account that isn't yours or records of a missed payment you didn't actually miss. Each credit bureau has its own process for disputing errors. If you find a mistake, contact the bureau to dispute it. Removing a missed or late payment can significantly improve your credit score, enhancing your chances of securing a favorable mortgage rate.

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

Each hard inquiry can lower your score by a few points. Multiple inquiries in a short period can seriously harm your score, suggesting 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 several lenders within a short timeframe, typically a few weeks, most models treat these applications as a single inquiry.

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