How to Figure Out Which Credit Score Mortgage Lenders Use

If you’re preparing to apply for a mortgage, understanding the credit scores mortgage lenders use is essential to improving your chances of approval and securing the best possible loan terms and interest rate. While you may be familiar with credit scores like FICO®, lenders often rely on specific versions tailored for the mortgage industry. Here’s how to figure out which credit score mortgage lenders use and why it matters.

Most commonly used credit scores for mortgages

Mortgage lenders typically use the FICO Scores, but not just any version. The most used models are:

• FICO Score 2
• FICO Score 4
• FICO Score 5

These versions are known as “classic” FICO Scores and are designed specifically to assess credit risk for mortgage lending. Unlike newer FICO models, these versions are widely accepted by lenders due to their longstanding reliability and compliance with underwriting standards set by government-sponsored entities (GSEs) like Fannie Mae and Freddie Mac.

Using consistent scoring models helps lenders evaluate borrowers, similarly, making it easier to determine loan eligibility and interest rates.

How mortgage lenders evaluate your credit

When applying for a mortgage, lenders often pull credit reports from all three major credit bureaus (Experian, Equifax and TransUnion). They use the middle score, meaning the second-highest score from your three credit reports. For example, if your scores are 720, 690 and 705, the lender would use 705 as your qualifying score.

If you’re applying jointly with a co-borrower, the lender typically uses the lowest middle score between both applicants.

Do all mortgage lenders use the same credit score?

Mortgage lenders are required to use the classic FICO Scores listed above when selling mortgage loans to GSEs; however, some mortgages aren’t sold to the GSEs. When the lender doesn’t plan to sell the loan to a GSE, like if it’s a jumbo loan, it can choose which credit score(s) to use when evaluating the application.

Steps to determine your mortgage credit score

1. Check your credit reports: Check your credit reports: Start by requesting your credit reports from AnnualCreditReport.com to ensure all the information is accurate. You’re entitled to one free credit report annually from each bureau.
2. Access your mortgage-specific FICO® Scores: While many free credit monitoring services provide general FICO Scores, you’ll need to use a service like myFICO to view the specific FICO Score versions that mortgage lenders use.
3. Address any discrepancies: Dispute errors or inaccuracies on your credit reports that could affect your score. This includes late payments, incorrect account balances or accounts that don’t belong to you.

Other factors mortgage lenders consider when determining mortgage terms

While your credit score plays a pivotal role in securing a mortgage, it’s not the sole determinant. Mortgage lenders evaluate a variety of factors to assess your financial health and determine the terms of your loan, including:

• Debt-to-income ratio (DTI): Your debt-to-income ratio measures the percentage of your gross monthly income that goes toward paying debts. Lenders prefer a DTI below 43%, but lower is better.
• Down payment: A larger down payment reduces the lender’s risk, often resulting in lower interest rates and eliminating the need for private mortgage insurance (PMI).
• Employment history and income stability: Lenders want to see a steady and reliable source of income. Typically, they look for at least two years of consistent employment in the same field.
• Loan-to-value ratio (LTV): The loan-to-value ratio compares the loan amount to the home’s appraised value. A lower LTV ratio indicates less risk for the lender, as you’re borrowing less relative to the property’s worth.
• Savings and cash reserves: Lenders like to see that you have savings or cash reserves after making your down payment.

Credit history: Lenders review your entire credit history in addition to your credit score. Factors such as the age of your accounts, types of credit used, and any derogatory marks like bankruptcies or foreclosures are considered.

Contact Information:
Name: Sonakshi Murze
Email: [email protected]
Job Title: Manager