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Which FICO Credit Score Do Mortgage Companies Use?
When it comes to applying for a mortgage, your credit score plays a crucial role in determining whether you qualify for a loan and what interest rate you’ll be offered. The most commonly used credit scoring model in the mortgage industry is the FICO score. However, there are several versions of the FICO score, and mortgage lenders may use different versions depending on their preference. In this article, we will explore the various FICO credit scores used by mortgage companies and answer some frequently asked questions.
Understanding FICO Credit Scores:
FICO scores are created by the Fair Isaac Corporation and are widely used by lenders to assess an individual’s creditworthiness. These scores range from 300 to 850, with higher scores indicating better creditworthiness. FICO scores are based on five key factors: payment history, amounts owed, length of credit history, new credit, and credit mix.
Different Versions of FICO Credit Scores:
There are several versions of the FICO credit score, each with its own unique formula and scoring range. The most commonly used versions in the mortgage industry are FICO Score 2, FICO Score 4, and FICO Score 5.
FICO Score 2: This version is based on credit data from Experian and has a scoring range of 300 to 850. It is used by mortgage lenders who primarily rely on Experian credit reports.
FICO Score 4: This version is based on credit data from TransUnion and has the same scoring range as FICO Score 2. It is used by mortgage lenders who primarily rely on TransUnion credit reports.
FICO Score 5: This version is based on credit data from Equifax and also has a scoring range of 300 to 850. It is used by mortgage lenders who primarily rely on Equifax credit reports.
Which FICO Credit Score Do Mortgage Companies Use?
Mortgage companies have the flexibility to choose which version of the FICO score they use. Some lenders use only one version, while others may use a combination of two or more. The decision on which version to use is often based on the credit reporting agency they rely on for credit reports.
Additionally, mortgage lenders may also consider other factors beyond the FICO score when assessing a borrower’s creditworthiness. These factors may include the borrower’s income, employment history, debt-to-income ratio, and the size of the down payment.
Frequently Asked Questions:
1. Will checking my credit score for a mortgage application impact my credit score?
No, checking your credit score for mortgage applications will not impact your credit score. This is known as a “soft inquiry” and does not have any negative effect on your credit.
2. How can I improve my credit score to qualify for a mortgage?
To improve your credit score, ensure that you make all your payments on time, keep your credit card balances low, avoid opening new credit accounts, and maintain a long credit history.
3. Can I get a mortgage with a low credit score?
While it may be more challenging to obtain a mortgage with a low credit score, it is not impossible. Some lenders specialize in offering loans to borrowers with lower credit scores, although the interest rates may be higher.
4. How often should I check my credit score when applying for a mortgage?
It is recommended to check your credit score at least several months before applying for a mortgage. This will give you enough time to identify and address any issues that may be negatively impacting your score.
In conclusion, mortgage lenders typically use different versions of the FICO credit score, depending on their preference and the credit reporting agency they rely on. It is important to review your credit report and understand your credit score well in advance of applying for a mortgage to ensure you can address any potential issues.
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