{"id":18956,"date":"2022-09-20T13:30:00","date_gmt":"2022-09-20T19:30:00","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=18956"},"modified":"2024-05-03T13:21:40","modified_gmt":"2024-05-03T19:21:40","slug":"what-credit-score-do-mortgage-lenders-use","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/credit-101\/what-credit-score-do-mortgage-lenders-use.html","title":{"rendered":"What credit score do mortgage lenders use, and how does it affect your loan?"},"content":{"rendered":"\n
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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. <\/em>See Lexington Law\u2019s editorial disclosure for more information.<\/em><\/a><\/p>\n\n\n\n

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FICO Score 2, 5 and 4 are the scoring models used by Experian, Equifax and TransUnion, respectively, for mortgage lending calculations.<\/h2>\n<\/div>\n\n\n\n

Your credit score is used to determine your creditworthiness across many industries, and there are several different types of credit scores a lender may use. What a credit card issuer looks for may be different from what a home lender looks for, so each scoring model is intended to cater to different needs.<\/p>\n\n\n\n

Knowing what FICO\u00ae<\/sup> Score mortgage lenders use can help you prepare for your home loan application. Below, we\u2019ll go into more detail on the FICO scoring model, how it\u2019s used and how you can improve your score to qualify for a better home loan.<\/p>\n\n\n\n

Which credit score is used for mortgage applications?<\/h2>\n\n\n\n
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Experian\u00ae<\/sup>, Equifax\u00ae<\/sup> and TransUnion\u00ae<\/sup> each use a type of FICO scoring model<\/a> for assessing mortgage applications\u2014versions 2, 5 and 4, respectively. The primary difference between these three models is which bureau they pull data from (for example, FICO Score 2 is based on data from Experian, FICO Score 5 is based on data from Equifax, etc.). Aside from that, they use very similar metrics for determining your creditworthiness.<\/p>\n\n\n\n

Mortgage companies<\/a> often pull scores from all three bureaus and use the middle score to make a decision about your mortgage application. That means that checking your credit score from one bureau may not be enough to see the full scope of your standing\u2014to do that, you\u2019ll want to check your credit score with all three bureaus<\/a>.<\/p>\n\n\n\n

<\/a>FICO 8 vs. mortgage score<\/h3>\n\n\n\n

Though FICO 8 is the most popular scoring model, it isn\u2019t currently used for home lending. The scores used for mortgages are FICO 2, 4 and 5. FICO 8 is what\u2019s referred to as a base score, which means it\u2019s used to determine whether an applicant is generally likely to repay their debt on time and in full. Version 8 is also a more recent update to FICO\u2019s scoring model than the versions used for home lending.<\/p>\n\n\n\n

<\/a>What credit score is needed to buy a house?<\/h2>\n\n\n\n

The minimum credit score needed to buy a house<\/a> could be as low as 580, but could be as high as 640. FHA and VA loans, for example, require a minimum score of 580 to qualify, while a USDA loan requires a minimum of 640.<\/p>\n\n\n\n

<\/a>How does your credit score affect your mortgage application?<\/h2>\n\n\n\n

Your credit score affects whether you will be approved for a mortgage and the interest rate you\u2019ll pay on the loan you receive. If your score is below the minimum requirements for a given loan type, you may not qualify for that loan. But if you do qualify for a loan, a higher credit score may qualify you for a better interest rate.<\/p>\n\n\n\n

<\/a>Interest rates based on credit scores<\/h3>\n\n\n\n

So, just how much does your credit score influence your interest rate? Over the course of a 30-year loan, even a fraction of a percentage point in interest can add up to tens of thousands of dollars. Here\u2019s a sample calculation<\/a> based on the most recent average home price<\/a> numbers.<\/p>\n\n\n\n

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<\/a>What other factors affect your mortgage terms?<\/h2>\n\n\n\n

So we know that your credit score helps determine your interest rate, but what else do mortgage lenders look at to determine your mortgage terms? According to the Consumer Financial Protection Bureau<\/a>, they also consider your:<\/p>\n\n\n\n