What FICO Score Do Mortgage Lenders Use?
Gain clarity on the exact FICO scores used by mortgage lenders and actionable steps to enhance your credit for successful home financing.
Gain clarity on the exact FICO scores used by mortgage lenders and actionable steps to enhance your credit for successful home financing.
A FICO score serves as a numerical representation of an individual’s creditworthiness, playing a significant role in mortgage lending decisions. Developed by the Fair Isaac Corporation, these scores offer lenders a standardized method for assessing the risk associated with a borrower. Mortgage lenders rely heavily on FICO scores to determine loan eligibility, set interest rates, and establish overall loan terms.
FICO scores, created by the Fair Isaac Corporation, provide a three-digit number ranging from 300 to 850, summarizing a person’s credit risk. A higher score generally indicates a lower risk to lenders, leading to more favorable loan terms and interest rates. Conversely, lower scores may result in higher interest rates or loan denial. Most lenders in the United States utilize FICO scores in their lending decisions, including for mortgage applications.
FICO scores are dynamic, changing as new information is reported to the credit bureaus. The three major credit bureaus—Experian, Equifax, and TransUnion—each compile credit reports, and slight variations in the data reported to each bureau can lead to different scores. When a mortgage lender evaluates an application, they typically obtain a tri-merge credit report, which combines information from all three bureaus and provides a FICO score from each. Lenders generally consider the middle score of the three when making their lending decisions for individual applicants.
Mortgage lenders traditionally utilize specific, older FICO models, often referred to as “Classic” or “Mortgage” FICO scores. These versions are FICO Score 2 from Experian, FICO Score 4 from TransUnion, and FICO Score 5 from Equifax. These particular models have remained prevalent in the mortgage industry because government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac have historically mandated their use for loans they purchase. This requirement ensures a consistent standard for evaluating credit risk across a significant portion of the mortgage market.
FICO Score 2 is the version obtained from Experian. TransUnion provides FICO Score 4. From Equifax, lenders typically use FICO Score 5. While newer FICO models, such as FICO 10 and FICO 10 T, have been developed, their universal adoption in the mortgage industry has been delayed. The Federal Housing Finance Agency (FHFA) announced in 2022 that FICO 10T and VantageScore 4.0 would eventually be required for loans sold to Fannie Mae and Freddie Mac, but full implementation is a multi-year effort. Therefore, the older FICO 2, 4, and 5 versions remain the primary scores used by most mortgage lenders.
FICO scores are calculated based on five main categories of information found in a credit report, each contributing a different percentage to the overall score. Understanding these categories can help borrowers improve their credit standing for mortgage applications.
Payment history carries the most weight, accounting for approximately 35% of a FICO score. This category reflects how consistently payments have been made on all types of credit, including credit cards, installment loans, and previous mortgages. Late payments, bankruptcies, foreclosures, and collection accounts can significantly lower a score. Timely payments are fundamental to a strong FICO score.
Amounts owed, also known as credit utilization, makes up about 30% of the score. This factor assesses the total amount of debt an individual carries and the percentage of available credit being used on revolving accounts. Keeping credit card balances low relative to credit limits, ideally below 30% of the limit, can positively influence this portion of the score.
The length of credit history contributes approximately 15% to a FICO score. This considers the age of accounts. A longer history of responsible credit management generally results in a higher score. Maintaining older accounts in good standing can be beneficial.
Credit mix accounts for about 10% of the score. This refers to the variety of credit types an individual has, such as revolving credit and installment loans. Demonstrating the ability to manage different forms of credit responsibly can indicate a lower risk.
New credit also makes up roughly 10% of the score. This factor considers recent credit inquiries and newly opened accounts. Each time an individual applies for new credit, a “hard inquiry” is typically made, which can temporarily lower a score. Opening multiple new accounts within a short period may suggest a higher risk.
Many readily available “free” credit scores, often provided by credit card companies or financial applications, are typically educational scores or different FICO versions, such as FICO Score 8 or VantageScore. These scores may not be the specific ones that mortgage lenders use for underwriting home loans and can differ significantly from mortgage-specific FICO scores.
To obtain the exact FICO scores that mortgage lenders primarily utilize, consumers can access their FICO Scores 2, 4, and 5 directly. MyFICO.com offers services to purchase these particular mortgage-industry versions. It is advisable to obtain scores from all three major credit bureaus—Experian, TransUnion, and Equifax—as there can be slight variations due to differing data. Some mortgage lenders may also provide these scores during the pre-approval or application process.
Improving FICO scores for mortgage lending involves consistent, responsible financial habits. The most impactful action is to pay all bills on time, every time. Payment history is the largest component of a FICO score, and even a single late payment can have a negative effect. Setting up payment reminders or automating payments can help maintain a perfect payment record.
Reducing credit utilization is another crucial strategy. This means paying down credit card balances to keep the amount owed significantly below the credit limit, ideally under 30% or even 10% of the total available credit. Lowering balances demonstrates effective credit management and can lead to a notable increase in scores. Paying off revolving debt, rather than just making minimum payments, is particularly effective.
Avoiding opening new credit accounts, especially in the months leading up to and during a mortgage application, is important. Each new credit application results in a hard inquiry, which can cause a temporary dip in a FICO score. New accounts also reduce the average age of accounts and increase the amount of available credit. It is generally best to let existing accounts age and demonstrate consistent payment behavior.
Regularly reviewing credit reports from all three major bureaus is a proactive step. Consumers are entitled to a free copy of their credit report from each bureau annually through AnnualCreditReport.com. Checking these reports for errors, such as incorrect late payments or fraudulent accounts, and promptly disputing any inaccuracies can prevent them from negatively affecting a score.
Keeping old credit accounts open, even if they have a zero balance, can be beneficial. Closing older accounts can shorten the length of credit history, which is a factor in FICO score calculation, and may negatively impact the score. Maintaining a healthy mix of credit types, such as both revolving and installment accounts, can also contribute positively to a score.