Which Credit Scores Do Mortgage Lenders Use for Mortgage Applications?

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. To ensure they can sell the loan, they align their lending standards with the GSEs’ guidelines.

As a result, many mortgage lenders request older versions of FICO® Scores. However, the GSEs will soon start requiring newer FICO and VantageScore® credit scores from lenders, which could lead to a significant change in the scores that lenders use.

Do All Mortgage Lenders Use the Same Credit Scores?

Mortgage lenders are currently required to provide the classic FICO® Scores listed above when selling mortgage loans to the GSEs. However, many mortgages aren’t sold to the GSEs. For example, lenders can’t sell non-conforming loans to GSEs; conforming loans are mortgages that conform to the GSE’s requirements. Non-conforming loans might include some jumbo loans. Certain lenders also might choose to keep some smaller loans in their portfolio to collect interest payments.

When the lender doesn’t plan to sell the loan to a GSE, it can choose which credit score—or scores—to use when evaluating your application. Some might even test the latest FICO 10 T or VantageScore 4.0 scores to better understand how the scores work with mortgage loans.

What Is a Good Credit Score to Buy a House?

A higher credit score can help you qualify for a lower interest rate when you get a mortgage. Additionally, different types of mortgages may have varying minimum credit score requirements:

For the government-backed mortgages (all but the jumbo and conventional loans above), the minimum credit score is the minimum that the program requires. However, lenders may have higher credit score requirements than the government program mandates. For example, Veterans Affairs (VA) loans technically don’t have a minimum credit score requirement, but many VA lenders require a credit score of at least 620.

What Else Do Mortgage Lenders Look at to Determine Mortgage Terms?

Your credit scores can be an important factor in getting approved for a mortgage and the rate you receive. However, mortgage lenders also consider other factors:

• Credit history: Even if you have a good credit score, the lender might deny your application if you recently filed for bankruptcy or had a home foreclosed on. Collection accounts, recent credit applications and open disputes could also affect your application.
• Employment and income: Lenders also want to see that you have a predictable income. They might consider how long you’ve worked at a specific job or in an industry and ask for tax returns and pay stubs to verify your income. Your monthly income relative to debt payments, called your debt-to-income (DTI) ratio, can also be an important factor.
• Mortgage reserves: Whether you have enough liquid assets to cover mortgage payments during an emergency is a key factor in the approval process.
• Loan-to-value ratio: Your loan-to-value (LTV) ratio compares the loan amount to the home’s value. Different loan types may have varying maximum LTV requirements, with conventional loans often requiring an 80% LTV if you want to avoid paying for private mortgage insurance.

Other factors, such as the loan amount, your down payment and loan type can all play into whether you’ll be approved and your mortgage’s terms. Lenders may also have unique assessments, which is one reason shopping for a mortgage can be important.

How to Improve Your Credit Scores Before Applying for a Mortgage

Although there are differences in the credit score calculations, the classic FICO® Scores and the newer scoring models that mortgage lenders will use only consider the information in one of your credit reports. As a result, similar actions might help increase all your scores.

Some of the things you can do to improve your credit before applying for a mortgage:

• Pay your bills on time: Even missing one payment can hurt your credit scores. Try to pay all your bills on time, including accounts that aren’t reported to the credit bureaus.
• Reduce credit card balances: Your credit card balances relative to your total available credit—your credit utilization ratio—can be an important scoring factor. Paying down credit card balances to lower your utilization ratio might help your credit scores. You might have a high utilization ratio even if you pay your credit card bills in full each month, but making early payments could help.
• Don’t apply for other types of credit: Avoid applying for other loans and credit cards if you’re shopping for a home. The hard inquiries and new credit accounts can lower your credit scores and increase your DTI.

In addition to getting your credit ready for a mortgage application, you want to get your finances in order. Saving up for a larger down payment, increasing your income and paying off debts may all help you qualify for a mortgage with better terms.

Monitor Your Credit When Looking for a Home

Most services that offer free credit scores don’t give you the classic FICO® Scores that mortgage lenders generally use. You can still check your FICO® Score 8 for free from Experian to see where you’re at based on that score, and monitor your credit report and score for free. A premium credit monitoring or score service also might include some of the classic FICO® Score versions.