Get the Score Lenders Use to Evaluate Your Home Mortgage Loan
After you’ve determined that you’re ready to buy a home, you need to understand how lenders see you. Lenders will determine your credit-worthiness based on your FICO® scores.
By getting your FICO® scores, you can be sure that you know the kind of loan offers you should be receiving before lenders present you with numbers.
FICO® scores are the credit scores most lenders use to determine your credit risk and the interest rate you will be charged. You have three FICO® scores, one for each of the three credit bureaus – Experian, TransUnion and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your FICO® score tends to change as well.
If you don’t think that your FICO® scores are important, think again. The interest rate you can expect to pay for a loan is dependent on these scores. The difference between a FICO® score of 620 and 760 can often be tens of thousands of dollars over the life of your loan. A low score can cost you money each month or even cause the home you want to be unaffordable.
Basically, the higher your FICO® scores the less you can expect to pay for your loan. For example, on a $216,000 30-year, fixed-rate mortgage:
| If your FICO® score is… | Your interest rate is… | And your monthly payment will be… |
| National interest rates, updated daily |
| 760 - 850 | 6.5% | $1,366 |
| 700 - 759 | 6.73% | $1,397 |
| 680 - 699 | 6.9% | $1,423 |
| 660 - 679 | 7.12% | $1,454 |
| 640 - 659 | 7.55% | $1,517 |
| 620 - 639 | 8.09% | $1,599 |
As you can see in this example using today’s national rates, a person with a FICO® score of 760 or better will pay $233 less per month for a $216,000 30-year, fixed-rate mortgage than a person with a FICO® score of 620 – that’s a savings of $2,796 per year. You can see how essential it is to get your FICO scores in the higher ranges if they are low, and also how important it is to keep them high if they are good.
Even if you think your FICO® scores are fine, there may be errors on your credit report that you’ll want to clear up before applying for a home loan. Addressing errors before you begin the process may be annoying, but dealing with them while you’re in the middle of trying to buy a home will be downright infuriating.
Most lenders use FICO® scores from all three credit bureaus when evaluating your loan application. Your score will likely be different for each credit bureau and there may be errors on one that don’t appear on the others. When you apply for a loan, do it with the peace of mind of knowing how you’ll be viewed by lenders.
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FAQs
While the FICO® 8 model is the most widely used scoring 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)
What score do lenders use for a mortgage? ›
The most commonly used FICO Score in the mortgage-lending industry is the FICO Score 5. According to FICO, the majority of lenders pull credit histories from all three major credit reporting agencies as they evaluate mortgage applications. Mortgage lenders may also use FICO Score 2 or FICO Score 4 in their decisions.
Do mortgage lenders use FICO or Vantage scores? ›
Mortgage lenders typically use FICO® Scores☉ from each credit bureau to help determine your loan eligibility and terms. Many mortgage lenders sell the mortgages they issue to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
Which credit bureau do most lenders use? ›
Although Experian is the largest credit bureau in the U.S., TransUnion and Equifax are widely considered to be just as accurate and important. When it comes to credit scores, however, there is a clear winner: FICO® Score is used in 90% of lending decisions.
How do lenders use the FICO score? ›
FICO Scores help lenders quickly, consistently and objectively evaluate potential borrowers' credit risk. So when you apply for credit or a loan, there's a very good chance your lender will use your FICO Scores to help them decide whether to approve you, and what terms and rates you qualify for.
What credit score is needed to buy a $300K house? ›
What credit score is needed to buy a $300K house? The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.
What FICO score is needed to buy a house? ›
The minimum credit score needed for most mortgages is typically around 620.
Is 700 a good credit score to buy a house? ›
So yes, 700 ought to be a good enough credit score to buy a house. In fact, says DiBugnara, “a credit score of 680 or above will likely give borrowers access to 95 percent of financing options available.”
What is the most accurate credit score for a mortgage? ›
The primary credit scoring models are FICO® and VantageScore®, and both are equally accurate. Although both are accurate, most lenders are looking at your FICO score when you apply for a loan.
Why is VantageScore so much higher than FICO? ›
VantageScore counts multiple inquiries, even for different types of loans, within a 14-day period as a single inquiry. Multiple inquiries on your reports for the same type of loan or credit, spanning more than a 14-day period, may have a greater impact to your VantageScore® credit scores than to your FICO® scores.
You'll usually need a credit score of at least 640 for the zero-down USDA loan program. VA loans with no money down usually require a minimum credit score of 580 to 620. Low-down-payment mortgages, including conforming loans and FHA loans, also require FICO scores of 580 to 620.
How many points does a mortgage raise your credit score? ›
There is no specific number of points that a mortgage will raise your credit score. It depends on many factors, such as how long you've had the mortgage, how consistent you've been with on-time payments and how much you have left to pay off. On top of that, you might have other factors affecting your score.
What is the most commonly used credit score in the mortgage industry? ›
For the majority of lending decisions most lenders use your FICO score. Calculated by the data analytics company Fair Isaac Corporation, it's based on data from credit reports about your payment history, credit mix, length of credit history and other criteria.
What is a good FICO score for a mortgage? ›
That's a FICO score of 670 or higher. The minimum credit score needed to buy a house can range from 500 to 700, but will ultimately depend on the type of mortgage loan you're applying for and your lender. Most lenders require a minimum credit score of 620 to buy a house with a conventional mortgage.
Is a FICO score of 8 good or bad? ›
FICO 8 scores range between 300 and 850. A FICO score of at least 700 is considered a good score. There are also industry-specific versions of credit scores that businesses use. For example, the FICO Bankcard Score 8 is the most widely used score when you apply for a new credit card or a credit-limit increase.
How much of a home loan can I get with a 650 credit score? ›
Your credit score typically won't affect the home loan amount you're able to receive. Instead, it will affect the interest rate of the loan. The lender will determine how much you can borrow based on a number of factors like your income, debt-to-income ratio, and more.
What credit score do you typically need for a mortgage? ›
There isn't a specific credit score you need for a mortgage, and that's because there isn't just one credit score. When you make an application for a mortgage or other type of credit, lenders work out a credit score for you.
Is FICO 8 or FICO 9 better? ›
Which is better: FICO score 8 or 9? FICO Score 9 is slightly more forgiving than FICO Score 8 since paid-off debt in collections no longer factor in, medical debts are treated differently, and consumers get more help with their credit when their rent payments are reported to the credit bureaus.
What credit score is needed for good mortgage rate? ›
Generally, a higher credit score means a lower mortgage rate. Those with excellent credit (720 and above) usually secure the best rates, while scores below 640 can lead to significantly higher rates.
What FICO score does Credit Karma use? ›
VantageScore and FICO are the two big rivals in the credit rating business. Credit Karma uses VantageScore. Their models differ slightly in the weight they place on various factors in your spending and borrowing history.
