Which Credit Scores Do Mortgage Lenders Use?

Which Credit Scores Do Mortgage Lenders Use for Mortgage Applications?

Today, many mortgage lenders use classic FICO scoring models for mortgage applications. FICO created slightly different scoring models for each credit bureau—Experian, TransUnion and Equifax—and they are named:

• FICO Score 2, or Experian/Fair Isaac Risk Model v2
• FICO Score 5, or Equifax Beacon 5
• FICO Score 4, or TransUnion FICO Risk Score 04

Mortgage lenders often get a single “tri-merge” report that contains your credit reports from each of the three credit bureaus and the associated FICO Scores. They might use the middle credit score or, if you’re applying jointly with a partner, the lower middle score of the two.

New Credit Score Requirements Are in The Works

In October 2022, the Federal Housing Finance Agency (FHFA) announced a significant change to the credit score requirements for mortgage loans. The multiyear plan will result in the GSEs requiring mortgage lenders to deliver newer credit scores when selling mortgage loans.

• During a transitional period, lenders will have to provide the classic FICO Scores and the newer FICO 10 T and VantageScore 4.0.
• Estimated to begin in the fourth quarter of 2025, lenders will only have to provide the newer FICO 10 T and VantageScore 4.0 scores.

Both of these newer credit scores are calculated based on the information in one of your credit reports. However, the models may be more predictive and consider types of data that weren’t as widely available when the older models were created.

For example, FICO 10 T and VantageScore 4.0 credit scores can consider rental payments in your credit file and trends in your credit history, such as how your credit utilization ratio changes over time. They also treat medical collections differently than other types of collections and ignore paid collection accounts.

Do All Mortgage Lenders Use the Same Credit Scores?

Mortgage lenders are currently required to provide the classic FICO Scores listed above when selling mortgage loans to the GSEs. However, many mortgages aren’t sold to the GSEs.

For example, lenders can’t sell non-conforming loans to GSEs; conforming loans are mortgages that conform to the GSE’s requirements. Non-conforming loans might include some jumbo loans. Certain lenders also might choose to keep some smaller loans in their portfolio to collect interest payments.

When the lender doesn’t plan to sell the loan to a GSE, it can choose which credit score—or scores—to use when evaluating your application. Some might even test the latest FICO 10 T or VantageScore 4.0 scores to better understand how the scores work with mortgage loans.

What Is a Good Credit Score to Buy a House?

A higher credit score can help you qualify for a lower interest rate when you get a mortgage. Additionally, different types of mortgages may have varying minimum credit score requirements:

For the government-backed mortgages (all but the jumbo and conventional loans above), the minimum credit score is the minimum that the program requires. However, lenders may have higher credit score requirements than the government program mandates. For example, Veterans Affairs (VA) loans technically don’t have a minimum credit score requirement, but many VA lenders require a credit score of at least 620.

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

Your credit scores can be an important factor in getting approved for a mortgage and the rate you receive. However, mortgage lenders also consider other factors:

• Credit history: Even if you have a good credit score, the lender might deny your application if you recently filed for bankruptcy or had a home foreclosed on. Collection accounts, recent credit applications and open disputes could also affect your application.
• Employment and income: Lenders also want to see that you have a predictable income. They might consider how long you’ve worked at a specific job or in an industry and ask for tax returns and pay stubs to verify your income. Your monthly income relative to debt payments, called your debt-to-income (DTI) ratio, can also be an important factor.
• Mortgage reserves: Whether you have enough liquid assets to cover mortgage payments during an emergency is a key factor in the approval process.
• Loan-to-value ratio: Your loan-to-value (LTV) ratio compares the loan amount to the home’s value. Different loan types may have varying maximum LTV requirements, with conventional loans often requiring an 80% LTV if you want to avoid paying for private mortgage insurance.

Other factors, such as the loan amount, your down payment and loan type can all play into whether you’ll be approved and your mortgage’s terms. Lenders may also have unique assessments, which is one reason shopping for a mortgage can be important.

How to Improve Your Credit Scores Before Applying for a Mortgage

Although there are differences in the credit score calculations, the classic FICO Scores and the newer scoring models that mortgage lenders will use only consider the information in one of your credit reports. As a result, similar actions might help increase all your scores.

Some of the things you can do to improve your credit before applying for a mortgage:

• Pay your bills on time. Even missing one payment can hurt your credit scores. Try to pay all your bills on time, including accounts that aren’t reported to the credit bureaus.
• Reduce credit card balances. Your credit card balances relative to your total available credit—your credit utilization ratio—can be an important scoring factor. Paying down credit card balances to lower your utilization ratio might help your credit scores. You might have a high utilization ratio even if you pay your credit card bills in full each month, but making early payments could help.
• Don’t apply for other types of credit. Avoid applying for other loans and credit cards if you’re shopping for a home. The hard inquiries and new credit accounts can lower your credit scores and increase your DTI.

In addition to getting your credit ready for a mortgage application, you want to get your finances in order. Saving up for a larger down payment, increasing your income and paying off debts may all help you qualify for a mortgage with better terms.

Monitor Your Credit When Looking for a Home

Most services that offer free credit scores don’t give you the classic FICO Scores that mortgage lenders generally use. You can still check your FICO Score 8 for free from Experian to see where you’re at based on that score, and monitor your credit report and score for free. A premium credit monitoring or score service also might include some of the classic FICO Score versions.