What credit score do mortgage lenders use?
Quick insights
- Mortgage lenders may use FICO® Score 2 (Experian™), FICO Score 4 (TransUnion®) and FICO Score 5 (Equifax®).
- Lenders typically use the middle score among the three, rather than the highest, lowest or an average.
- The credit score used by a mortgage lender may differ from the score you may see in a credit card or credit bureau app.
When you apply for a mortgage, lenders don’t look at the credit score you see in a banking app. They use specific scoring models designed for mortgage lending. Those scores can look different from the ones used for credit cards or auto loans. Read on to learn which score model is used, how it’s calculated and how it can affect your loan terms.
Credit score models used in mortgage applications
Mortgage lenders generally use older, “classic” versions of the FICO Score specifically for home lending:
- FICO score 2 (Experian)
- FICO score 4 (TransUnion)
- FICO score 5 (Equifax)
Lenders look at all three and use the middle number. If you apply with a co-borrower, the lender may use the lower of your two middle scores.
When you apply for mortgage preapproval, lenders pull credit from all three major bureaus and use these mortgage-specific FICO scores to evaluate your financial profile.
These models are different from the newer FICO versions often used for credit cards or personal loans, such as FICO Score 8 or FICO Score 9. Credit card issuers may focus more heavily on recent credit card behavior and revolving balances, while mortgage-specific FICO models tend to place greater weight on long-term credit history and patterns of repayment.
How your credit score affects interest rates
Your credit score is a main factor in your mortgage interest rate, which impacts your monthly mortgage payment and total borrowing cost. Here’s an example:
Imagine two first-time homebuyers buying a $350,000 home with the same down payment.
- Person A has a credit score of 780.
- Person B has a credit score of 640.
Person A may qualify for a lower mortgage rate, which can save hundreds of dollars per month. Over 30 years, that lower rate can possibly save tens of thousands of dollars.
Other factors mortgage lenders use
While your credit score matters, it’s only one piece of the puzzle. Lenders also look at:
- Debt-to-income ratio (DTI): Your DTI ratio compares your monthly debt payments to your gross monthly income.
- Income and employment history: Job stability and earning consistency are important, not just income figures.
- Down payment amount: This can influence loan approval and financing terms.
- Loan type and term: Both affect how strict or flexible a lender’s requirements are to approve a mortgage loan.
- Savings: This suggests an ability to cover payments if your finances change unexpectedly.
If you’re unsure where you stand, a mortgage affordability calculator can estimate how much you can afford.
Minimum credit score for each loan type
The minimum credit score required to buy a home depends on the type of loan you choose. Requirements vary by lender, but here are potential benchmarks:
- FHA loans: Often require a minimum credit score of 580 to qualify for the lowest down payment option on an FHA loan. Some lenders may allow lower scores with a larger down payment—a credit score of 500 may qualify if you’re putting down 10%, for example.
- VA loans: The U.S. Department of Veterans Affairs does not set a minimum credit score. However, a score of around 620 or higher may help when applying for a VA loan.
- Conventional loans: Conventional loans generally require a minimum score of 620, but higher credit scores may lead to more competitive interest rates.
How to improve your credit score
If you’re planning to apply for a mortgage, you can work on improving your score now. If you’re concerned about getting a home loan with low credit, don’t be discouraged. Even small score increases may expand your loan options or improve pricing. A few things that may improve credit scores include:
- Reviewing credit reports for errors and working to correct them.
- Paying debts on time, because payment history factors into your credit score.
- Waiting on new debt, particularly right before applying for a mortgage.
Building strong credit habits consistently can put you in a more favorable position when you’re ready to kickstart the homebuying process.
In summary
Lenders use specific FICO® Score models (FICO 2, 4 and 5) when underwriting mortgage loans. These scoring models differ from those commonly used for other types of debt, like credit cards. Your credit score helps determine your mortgage interest rate, but it’s just one part of the financial picture lenders consider. Your monthly income, debt obligations and down payment are important, to name a few. Knowing how these pieces fit together will help you during your homebuying journey.
