The credit score mortgage lenders look at when you apply for a home loan (2024)

Your credit score is a three-digit number that reflects your credit history. It's not the complete financial picture, but lenders consider it when evaluating you for lines of credit and insurance.

But there are multiple versions of your credit score.

For the majority of lending decisions most lenders use your FICO score. Calculated by the data analytics company Fair IsaacCorporation, it's based on data from credit reports about your payment history, credit mix, length of credit history and other criteria.

Some lenders use another scoring model, VantageScore, especially credit card companies.

But if you're applying for a mortgage, the score on your application might be different from either of them.

Here's what you need to know about credit scores if you're looking to buy a home.

While the FICO^® 8 model is the most widely usedscoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage:

• FICO^®Score 2 (Experian)
• FICO^®Score 5 (Equifax)
• FICO^®Score 4 (TransUnion)

All the credit reporting agencies use a slightly different version of the FICO score. That's because FICO tweaks its model to best predict creditworthiness in different industries. You're still evaluated on the same core factors — payment history, credit use, credit mix and the age of your accounts— but they're weighed a little differently.

That makes sense — paying off a mortgage is different than using a credit card responsibly.

The FICO 8 model used by credit card companies is more critical of high balances onrevolving credit lines. Since revolving credit is less of a factor when it comes to mortgages, the FICO 2, 4 and 5 models have proven to be reliable when evaluating candidates for a mortgage.

According toDarrin English, a senior community development loan officer at Quontic Bank, mortgage lenders request your FICO scores from all three bureaus — Equifax, Transunion and Experian. But they only use one when making their final decision.

If all of your scores are the same, the choice is simple. But what if your scores are different?

"We'll use the median as the qualifying credit score," English said. "It's called a tri-merge."

If two of the three scores are identical, lenders use that one, he added, regardless of whether it's higher or lower than the third.

If you are applying for a mortgage with a co-signer, like a spouse, each applicant's FICO 2, 4 and 5 scores are pulled. The lender identifies the median score for each of you, and then uses the lower of the two.

Knowing your credit score is the first step in getting the best rates on your mortgage.

According to FICO, a borrower with a credit score of 760 can expect an interest rate of6.47% on a 30-year fixed mortgage. For a borrower with a score between620 and 639 (considered subprime), that rate would be8.05%.

A 1.58% APR savings may seem negligible, but it could save you hundreds each month and thousands over the life of the loan.

Your credit score reflects your history of paying off debt. A higher score can save you thousands in interest payments over the life of your mortgage. If you want to improve your score:

• Make on-time payments in full, especially on revolving credit like credit cards.
• Ask to increase your credit limit on existing cards
• Keep your credit utilization rate under 30%
• Avoid opening new lines of credit
• Try to get credit for utility payments

*Experian Boost™ is a free service that updates your Experian credit report with on-time payments to your mobile carrier, power company and other utilities not usually linked to credit-reporting agencies. According to the company, users whose FICO scores improve see an average increase of 13 points.

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