Which Credit Score Do Mortgage Lenders Use To Review Mortgage Applications?

Which Credit Score Do Mortgage Lenders Use To Review Mortgage Applications?
30th May 2024
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Your credit history is displayed in your credit score, which is a three-digit figure. Lenders take this into account when assessing you for loans and insurance, even if it's not the complete picture of your financial status. However, there are various versions of your credit score.

Most lenders use your FICO score to make the majority of their mortgage lending decisions. It is determined by Fair Isaac Corporation, a data analytics organization, leveraging information from credit reports regarding your credit mix, duration of credit history, payment history, and other factors.

Which Credit Score Is Used by Mortgage Lenders to Evaluate Applications?

When considering a borrower's creditworthiness during the home loan application process, mortgage lenders mostly consider FICO® Scores 2, 4, and 5. The three main credit bureaus—Experian™, Equifax®, and TransUnion®—use these three FICO® Scores, despite the fact that there are sixteen scoring models for the score.

The Fair Isaac Corporation developed FICO® Scores, which are financial metrics, to track borrowers' capacity to repay their debts. Your credit score is usually expressed as a three-digit figure between 300 and 850; the higher your score, the more likely you are to repay your debt.

More than 90% of lenders, according to the Fair Isaac Corporation, base their loan decisions on FICO® Scores.

How Do Lenders Choose What Credit Score To Use?

When deciding to lend hundreds of thousands of dollars, mortgage lenders conduct as much research as they can. To do so, you must frequently obtain your FICO® Score from each of the three main credit agencies. But because each credit agency uses a separate set of scoring models, these scores might differ, leaving many borrowers unsure of which credit score would be taken into account when applying.

Mortgage lenders often use the average score for your application when they have all three FICO® scores. For example, if your FICO® scores are:

  • Experian™ FICO® Score 8: 720
  • TransUnion® FICO® Score 8: 740
  • Equifax® FICO® Score 8: 730

The lender will consider the median score, which in this case is 730.

What Else Do Mortgage Lenders Look at to Determine Mortgage Terms?

One of the main determinants of your mortgage rate and approval status is your credit score. Mortgage lenders do, however, also take into account additional factors like:

Credit History:

A recent bankruptcy filing or house foreclosure may result in the lender rejecting your application, even if your credit score is high. Applications for credit that have been denied recently, ongoing disputes, and collection accounts may also have an impact.

Income Status:

Your consistent income source is another thing that lenders look for. To confirm your income, they might look at how long you've worked in a certain field or at a particular job. They might also request tax records and pay stubs. A significant aspect may also be your debt-to-income (DTI) ratio, which is your monthly income divided by the amount of debt you are required to pay.

Mortgage Reserves:

An important consideration in the approval process is if you have sufficient liquid assets to pay your mortgage in an emergency.

Loan-to-Value Ratio:

The loan amount is compared to the home's value in your loan-to-value (LTV) ratio. The maximum LTV criteria for various loan types may differ; for example, conventional loans often have an 80% LTV limit if you wish to avoid having to pay for private mortgage insurance.

The Importance of Credit Scores During The Application Process

The credit scores that lenders consider when reviewing applications are crucial since they might impact your loan conditions, interest rate, and even your eligibility for a mortgage. Lenders are more likely to offer you a better loan deal if your credit score is higher—generally above 740. However, borrowers with a minimum credit score of 580 may still be eligible for some loans. Lenders take into account other factors besides credit scores. They will also examine your debt-to-income ratio, savings, income, and work history, among other important pieces of data.

How to Improve Your Credit Scores Before Applying for a Mortgage

Pay Your Invoices on Time:

It might lower your credit scores to even one late payment. Even for accounts that aren't reported to the credit bureaus, make an effort to pay all of your obligations on time.

Lower Credit Card Amounts:

A significant score element may be the ratio of your credit card balances to your overall credit limit, or credit usage. Credit scores may be improved by reducing credit card balances to reduce utilization ratios. Despite paying your credit card bills in full each month, you may still have a high utilization ratio; however, you can lower it by paying off your balance early.

FAQs On What Credit Scores Lenders Use

1. Do all mortgage lenders use the same credit score?

No, not all mortgage lenders USA use the same credit score. Different lenders may use different versions of FICO® scores or may choose to evaluate your credit using scores from different credit bureaus such as Experian, TransUnion, and Equifax.

2. What do lenders consider a “good” credit score?

Lenders typically consider a FICO® score of 700 or higher to be "good." Scores between 740 and 799 are considered "very good," and scores of 800 or above are considered "excellent." These ranges can help you secure more favorable loan terms and interest rates.

3. If my credit score is different with all three credit bureaus, which score do lenders use?

If improve your credit scores differ across the three credit bureaus, lenders usually take the middle score. For example, if your scores are 720, 740, and 730, the lender will use the 730 score for your application.

4. Which credit score do mortgage lenders use?

Mortgage lenders commonly use the FICO® score models, specifically the older versions like FICO® Score 2, 4, and 5, which correspond to Experian, TransUnion, and Equifax, respectively.

5. Which credit score company do mortgage lenders use?

Mortgage lenders typically use FICO® scores from the three major credit bureaus: Experian, TransUnion, and Equifax. These scores help lenders assess your creditworthiness and determine your loan eligibility.

6. Whose credit score is used when buying a house?

When buying a house jointly, mortgage lenders will look at the credit scores of all applicants. They typically use the middle score of the lowest-scoring applicant to determine the loan terms.

7. Why is my credit score different when a lender pulls it?

Your credit score may differ when a lender pulls it because lenders often use specific versions of the FICO® score tailored for mortgage lending. Additionally, scores can vary due to differences in the information each credit bureau has on your credit history.

Bottom Line

A subset of your credit score is used by mortgage lenders to assess your suitability for a house loan. If you're planning to buy a house soon, keep an eye on your credit score, which is important to mortgage lenders.

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