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Which FICO Score Do Mortgage Lenders Use? | Info On The Go Ep 70

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How Your Credit Scores Are Made And Why They Matter

Since there are few numbers that matter as much to your financial well-being as your credit score, it helps to know what your scores mean and how they work.

First, know that theres a big difference between a credit report and a credit score.

  • Your credit report is a record of your borrowing history Each loan or line of credit youve opened, dates on those accounts, payment history , and so on. Overall, it shows how reliably you manage and pay back your debts
  • Your credit score sums up your credit report in a single number It weighs every item on your credit report to come up with an overall score that sums up how responsible of a borrower you are

The big three credit bureaus Equifax, Transunion, and Experian operate in the realm of credit reporting.

Each one keeps a separate record of your borrowing history, based on the information your creditors send them.

The other players in the game FICO and VantageScore are responsible for credit scoring. They determine your score based on whats included in those credit reports.

For example, keeping your credit utilization ratio low can help your credit scores, while repeatedly neglecting to pay your credit card bills on time can hurt them.

Why Is My Fico Higher Than My Vantagescore

More often than not, you may find that theres significant variation between the two models. This is to be expected because they take a look at different things and weigh them differently.

There are also different models of FICO® being used between bureaus along with different models of VantageScore®. FICO® models vary and they can have a different formulation depending on where the lender sources them from. Currently, VantageScore 3.0® is a very commonly used version. With this variation, its not uncommon for one score to be higher or lower than the other.

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What Interest Rate Can I Get With My Credit Score

While a specific credit score doesnt guarantee a certain mortgage rate, credit scores have a fairly predictable overall effect on mortgage rates. First, lets assume that you meet the highest standards for all other criteria in your loan application. Youre putting down at least 20% of the home value, you have additional savings in case of an emergency and your income is at least three times your total payment. If all of that is true, heres how your interest rate might affect your credit score.

  • Excellent Your credit score will have no impact on your interest rate. You will likely be offered the lowest rate available.
  • Very good Your credit score may have a minimal impact on your interest rate. You could be offered interest rates 0.25% higher than the lowest available.
  • Good Your credit score may have a small impact on your interest rate. This means rates up to .5% higher than the lowest available are possible.
  • Moderate Your credit score will affect your interest rate. Be prepared for rates up to 1.5% higher than the lowest available.
  • Poor Your credit score is going to seriously affect your interest rates. You may be hit with rates 2-4% higher than the lowest available.
  • Very Poor This is trouble. If you are offered a mortgage, youll be paying some very high rates.

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What If No Score Is Available

In some situations, an applicant may not have a usable FICO score from one of the three credit bureaus. In that case, the mortgage lender will simply use the lower of the two scores that are available. And if two scores are not usable, they will use the one remaining score.

And since you may be wondering, if a mortgage applicant has no usable FICO scores, generally they wont qualify for a mortgage. I say generally because there are exceptions. If you fall into this category, contact a mortgage broker to see what options you have.

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How Your Credit Score Affects Your Chances Of Getting A New Mortgage Loan

Notwithstanding the waiting periods, you have to establish good credit following a foreclosure before you can get another mortgage your credit score must meet the lender’s minimal requirements. Alternatively, while you might be able to get a new mortgage with a low credit score, you could have to make a larger down payment or pay a higher interest rate.

How Can I Improve My Credit Score

Qualifying for a mortgage was the first sign youre on the right path. But as you continue to strive to build your credit score, you might be wondering what factors impact it the most. Here is a breakdown FICO® shares of the model it uses to determine your credit score:

  • Payment history : Never miss a payment to receive the full effect of this hefty percentage.
  • Keep your revolving credit under 30% for the best results. Remember that this number doesnt take into account your installment credit, like your mortgage or a personal loan, as those will have set repayment terms.
  • Length of credit history : Keep those older accounts open, even if youre not using them regularly.
  • This refers to the different types of revolving and installment credit you have, including credit cards, vehicle loans, student loans, and now, your mortgage. Lenders like to see that you can manage different types of credit responsibly.
  • New credit : Lenders will take into account if youre applying for new cards, which could signal that youre planning a spending spree.

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How The 3 Credit Reporting Bureaus Affect Your Score

As many consumers already know, there are three major credit reporting agencies.

  • Equifax
  • Transunion
  • Experian

While its possible your scores will be similar from one bureau to the next, youll typically have a different score from each agency.

Thats because its up to your creditors to decide what information they report to credit bureaus. And its up to the creditors to decide which agencies they report to in the first place.

Since your credit scores depend on the data listed on your credit reports, more than likely you wont see the exact same score from every credit reporting agency.

Fortunately, most agencies look at similar factors when calculating your credit scores. As long as you manage credit cards and loans responsibly, your credit scores should be fairly similar to one another.

But different credit reporting agencies arent the only challenge.

There are also different credit scoring models. And, as if that didnt already complicate matters, there are also different versions of these models.

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Which Credit Bureau Will Your Lender Pull From

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All you have to do is ask!

Your lender should be more than willing to tell you which bureau they plan to use when pulling your report. Once you have this information, you can pull your file to see how you will come across it.

Concerning the Fair Credit Reporting Act, this should only create an inquiry on one of your reports if it shows up across the board, you might be able to dispute its removal. If the inquirys effect on your credit score concerns you, remember that a single inquiry will not hurt your score by more than five points, and it will have zero effect after two years.

Interestingly, you might want to consider this variable when shopping for the best rates and highest card limits. Some consumers are unfortunate enough to have a staggering score difference between bureaus.

If your credit rating is 10 points or higher at one of the bureaus, then it would make sense to shop for financing through lenders that pull from there. Most lenders are fixed to a single bureau, so it will not be hard to manipulate your loan application results this way.

That said, some lenders will pull your credit report from multiple bureaus. Sometimes this is done to gather missing details, but its standard practice for many lenders.

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Can You Get A Home Loan With Bad Credit

Its possible to qualify for a mortgage even if your credit score is low. Its more difficult, though. A low credit score shows lenders that you may have a history of running up debt or missing your monthly payments. This makes you a riskier borrower.

To help offset this risk, lenders will typically charge borrowers with bad credit higher interest rates. They might also require that such borrowers come up with larger down payments.

If your credit is bad, be prepared for these financial hits. You can qualify for a mortgage, youll just have to pay more for it.

Why Are Fico Scores So Important

Your FICO® Scores are important because they determine your mortgage eligibility. Based on your credit score, your lender will regulate how much money you will receive and how long you must pay them back at a given interest rate.

Having a good FICO® Score is even more important because it will help you save a lot of money. It will also make you eligible to qualify for a wider variety of mortgage options. Later we will talk about what is considered a good score and how you can build your current score.

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What You Can Do To Raise Your Credit Score Faster After Taking Out A Mortgage

If youve been approved for a mortgage, first congratulate yourself not only are you about to embark on the exciting ride of home ownership, but you have shown that your financial history is commendable, given how hard it is to qualify for a mortgage in the first place.

But clean credit is important, and you might be itching to get to the up side of the mortgage credit score swing, especially if you are hoping to make another purchase, like a vehicle, or want to take out another credit card. The potential lender will be checking your credit, and even though your credit score took a slight ding for all the right reasons, nevertheless, that is the number they are considering as they assess your interest rate.

Fortunately there are some things you can avoid to help your credit score recover more quickly.

The list of donts includes:

The Scoring Model Used In Mortgage Applications

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
  • FICO® Score 5
  • FICO® Score 4

As you can see, each of the three main credit bureaus use a slightly different version of the industry-specific FICO Score. That’s because FICO tweaks and tailors its scoring model to best predict the creditworthiness for different industries and bureaus. You’re still evaluated on the same core factors , but the categories are weighed a little bit differently.

It makes sense: Borrowing and paying off a mortgage arguably requires a different mindset than keeping track of and using a credit card responsibly.

The FICO 8 model is known for being more critical of high balances on revolving credit lines. Since revolving credit is less of a factor when it comes to mortgages, the FICO 2, 4 and 5 models, which put less emphasis on , have proven to be reliable when evaluating good candidates for a mortgage.

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How Does Credit Score Affect Your Interest Rate

The interest rate you receive on a home loan is largely tied to your credit score. Generally, borrowers with higher credit scores qualify for lower mortgage rates, which can save them thousands of dollars over the life of a mortgage.

Every lender will have a different formula for setting your interest rate, but even a small difference on your credit score can help you save substantially. For example, bumping your credit score from 660 700 may help you shave $61 off your monthly payment on a $300,000 mortgage. Thats a difference of $21,960 over a 30-year mortgage term.

What Is A Good Credit Score

Once you know your score, you can then decide whether or not you should create a plan for credit repair. Though a higher score is always better, most consumers aim to get their credit score into the good threshold or above. While ranges will vary slightly between the FICO® and VantageScore 3.0 score models, 850 is the highest possible credit score for both. The credit score ranges for FICO® impact may include:

  • Exceptional: 800 850: Applicants with exceptional credit get access to the best interest rates, most beneficial offers and can even secure special individualized perks and offers from lenders.
  • Very Good: 740 799: Applicants with very good credit will have a variety of options to choose from when it comes to products and pricing.
  • Good: 670-739: According to data from Experian, borrowers in the good range have only an 8% chance of becoming seriously delinquent in the future. Most borrowers are in the good range of credit.
  • Fair: 580 699: Fair borrowers may see higher interest rates and lower ranges of credit than their peers with good or higher scores.
  • Poor: 300 579: Lenders see borrowers with poor credit scores as very high risk. Borrowers with poor credit may pay a fee or deposit in exchange for credit or a loan or they may be flat-out refused by lenders. If you have poor credit, you may want to create and carry out a credit repair plan immediately.

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Will I Have To Talk To Anyone If I Apply Online

There may be some situations in which youll need to chat with a Home Loan Expert, either online or by phone, to answer some questions.

Once your application is complete, we may need to call you while were working on finalizing your loan. Well use phone calls and emails to communicate important information about your appraisal, your closing and more.

What Scores And Models Are Used When Applying For A Mortgage

FICO Originations Solutions for Mortgage Lending

FICO® created different scoring models for each credit bureauExperian, TransUnion and Equifax. The commonly used FICO® Scores for mortgage lending are:

  • FICO® Score 2, or Experian/Fair Isaac Risk Model v2
  • FICO® Score 5, or Equifax Beacon 5
  • FICO® Score 4, or TransUnion FICO® Risk Score 04

Mortgage lenders will often get a single report that contains your credit reports from each of the three credit bureaus and the associated FICO® Scores. It may base the lending decision on your middle credit score or, if you’re applying jointly with a partner, the lower middle score.

Keep this in mind when you’re trying to figure out what . If you’re looking for a mortgage that requires a minimum credit score of 580, you may need your middle score to be at least 580 based one these specific FICO® Score models.

There are exceptions, though. Mortgage lenders could use different credit scoring models for loans that aren’t secured or bought by Fannie Mae or Freddie Mac. You might even be able to get a mortgage if you don’t have a credit history or score at all.

Additionally, there’s a review underway that could open up the use of different credit scoring models for mortgages, even if they’re secured or bought by Fannie Mae or Freddie Mac. However, until there’s a change, many mortgage lenders will continue to use these three classic FICO® Scores.

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Rocket Mortgage Rate Transparency

If youre trying to get an idea of what prevailing interest rates are, you wont find sample national rates on the Rocket website. For that, you’ll need to head over to There, you’ll find a page listing common loans and interest rates.

For rates customized to your situation, create a Rocket Mortgage account and provide some information to get a personalized rate, but remember, viewing those rates may involve a hard credit inquiry.

You may find that the bouncing between Rocket Mortgage and Quicken Loans throughout the loan process to be a little jarring at first. It’s likely that Rock Holdings, the parent company of Rocket and Quicken, will phase out the Quicken name eventually. They’ve been paying for the Quicken naming rights for years while the Rocket name has gained marketing momentum.

For more information on the loan process behind the scenes, see NerdWallet’s Quicken Loans review.

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Fha Lenders Dont Always Follow Fha Credit Score Minimums

Banks and mortgage companies that offer FHA loans are not required to follow FHA guidelines to the letter.

These are private, for-profit companies that simply approve loans based on guidelines provided by a government agency, namely the Federal Housing Administration, or FHA.

Most if not all lenders across the country impose tougher guidelines for FHA loans than does FHA itself. It doesnt seem to make a lot of sense until you realize that FHA penalizes lenders for approving too many bad FHA loans.

Yes, FHA actually penalizes lenders if they approve borrowers who default months and years later, even if the loan fits perfectly within FHAs published guidelines.

Heres an example.

A borrower applies for a loan and is approved based on FHAs guidelines. Six months later he loses his job and can no longer make his monthly payments. FHA records that bad loan on the lenders record.

Too many bad loans and FHA could revoke the lenders ability to offer FHA loans. That could put some mortgage companies out of business.

Statistically, borrowers with lower credit scores default more often. Thats why most lenders require a higher minimum credit score than does FHA.

Here are credit score minimums as stated by FHA:

Most lenders require a score of at least 620-640. But that number could drop closer to FHAs published minimums because of the new policy.

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