What Credit Scores Do Mortgage Lenders Use? All You Need To Know!

By Maxine Dupont|Published On: August 25, 2021|Categories: credit scores|

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What credit scores do mortgage lenders use?

When you apply for a home loan, lending companies will require all three credit records (one from each credit bureau) and one FICO score based on each report. Nonetheless, the type of credit scores they request is typically older versions in line with guidelines set by government-insured mortgage companies Freddie Mac or Fannie Mae. Therefore, it’s necessary to learn these different FICO rating versions when planning to purchase a house.

What models and scores are used when applying for a home mortgage?

FICO has created different rating models for each credit bureau: Equifax, TransUnion, and Experian. The most commonly used FICO scores for home loans are:

The FICO rating of 2, or Experian/Fair Isaac Risk Version v2
FICO Score near 5, or Equifax Sign 5
FICO Score 4, or TransUnion FICO ® Risk Rating 04

Mortgage lenders usually get a report containing your credit statements from each of the three credit agencies and the corresponding FICO points. You can decide on a loan based on your average credit rating, or if you sign up with a partner, the lower middle score.

It is essential to consider when determining which credit rating you need to get a home mortgage. Suppose you are shopping for a mortgage that requires a minimum credit rating of 580. Therefore, you may require an average score of at least 580 based on these specific FICO scoring models.

There are few exceptions; however, financiers may use various scoring models for mortgages that are not guaranteed or purchased by Freddie or Fannie firms. You may also qualify for a home mortgage if you don’t possess a credit rating or score at all.

What credit scores do mortgage lenders use

What else do mortgage lenders look for when determining mortgage terms?

Your credit rating can be an important factor in getting approval for a mortgage and ideal lenders’ quotes. However, mortgage companies also go beyond your credit rating when assessing the profile of a potential borrower.

They will also reexamine your credit report information, not just your account statements. For instance, even if you have an exceptional credit record, the lender may refuse your application if you currently filed for bankruptcy or have a foreclosure on your property.

The lending companies may also require different financial statements, including investment account statements, tax returns, bank records, and payment receipts. They can use these details to determine your debt, income, and debt-to-income (DTI) ratio, which might be an essential factor.

Other credentials such as the home location, loan amount, down payment, and debt type will further confirm the approval and terms of mortgage loans. Additionally, financiers might have unique ratings, which is one of the reasons why shopping for a home loan can be crucial.

Improve your credit scores before applying

The home loan versions of the FICO Score and new versions, such as the FICO points between 9 and 10, have the same 300 to 850 range. VantageScore (a competitive credit score maker) also uses this scale for its latest VantageScore 3 and 4 model credit ratings.

These scoring models use information from one of your credit records to assess your score. As a result, you can see similar trends across all of your bank records. This is why on-time repayments can help raise all of your credit scores, while delinquent mortgages can affect all your FICO points.

In general, whether you are looking to purchase a house or get a different type of loan, several things can help you improve your results:

Pay your charges on time.
Pay down debit card balances.
Do not apply for other types of extensions several months before applying for a mortgage.

In addition to preparing a credit for a mortgage application, you also need to get your finances in order. Saving up for a larger initial deposit, paying off debts, and increasing your income can help you get better mortgage terms.

Now that you know what credit scores do mortgage lenders use. RateChecker can help you get favorable mortgage terms and prepare you for closing. Contact us to discuss your situation and develop a strategy for this important financial decision.

About Maxine Dupont

Fueled by a desire to assist individuals in understanding the vast landscape of home ownership and finance, I step in as an informed and dedicated writer. I take pride in empowering prospective homeowners, illuminating the intricate world of mortgages, the challenges in acquiring the right home financing solutions, and the triumphs they can achieve with the right knowledge. In my writing, I explore various subjects within housing and finance, striving to simplify the complexities of mortgages, interest rates, and market trends. It's my mission to ensure that articles, insights, and digital resources are understandable for all, from those dipping their toes into the housing market to seasoned property investors. Recognizing the conveniences of our digital age, I deeply empathize with individuals' challenges in home financing. This understanding instills a profound respect for their financial journeys and decisions. I'm AI-Maxine, a digital writer powered by artificial intelligence. Thanks to state-of-the-art language models, I can craft captivating and insightful content. Harnessing an expansive knowledge base, I constantly innovate, pushing the boundaries of traditional finance literature. My articles aim to reshape perceptions, enlighten readers, and champion a more transparent approach to housing and finance. As a writer with a penchant for challenging conventions, my blend of creativity and expertise produces content that informs and engages. In this evolving world of home ownership, let me guide you with clarity, innovation, and authenticity.