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What Credit Score Will Your Mortgage Lender Use?

What Credit Score Will Your Mortgage Lender Use?. 0

In a prior blog post about what home buyers should know about credit scores, we discussed how credit scores can affect your mortgage payment. Today, we’ll talk about the different types of credit scores, and why the score your lender uses could vary from the score you know!

FICO Score

For decades, the Fair Isaac Corporation, also known as FICO, has dominated consumer credit scoring. FICO scores have a range of 300 to 850. The higher your FICO score, the more credit-worthy you appear to a lender.

FICO has become synonymous with credit scores, just as “Kleenex” has with facial tissue. However, there are multiple FICO scoring models in use today, which vary by financial institution.

What’s more, each major credit reporting agency – Experian, TransUnion and Equifax – will tabulate a different FICO score. This is because not all lenders and credit card companies report to all three bureaus. Therefore, your score may be lower with Transunion, but higher with Equifax.

For this reason, lenders often pull credit score data from all three bureaus and average them. For example, if you have a score of 700 through Experian, 680 on Equifax, and 660 on TransUnion, the 680 score would be used.

If you have a co-signer on your loan, his or her scores would also be averaged. From there, the lender is likely to use the lowest average credit score between the two borrowers.

While you can get one free credit history per year from annualcreditreport.com, the only way to get your actual FICO scores is to purchase them through MyFico.com. Please keep in mind that your credit scores can change frequently, depending on your monthly credit use and payment activity.

Vantage Score

In 2006, TransUnion, Equifax and Experian created their own credit scoring system to rival FICO. Initially, Vantage Score had its own numerical range, which was confusing to lenders and consumers who were used to FICO. Vantage Score then switched to a scoring range of 300 to 850, which brought a lawsuit from FICO that was ultimately rebuffed by the courts. Today, Vantage Score is becoming widely accepted as an alternative measure of consumer creditworthiness.

It’s important to understand that a 700 Vantage Score is not the same as a 700 FICO. By design, Vantage scores assign value to payment habits that are not ordinarily tracked by FICO. These include things like rental payment history, utility payments, cell phone bill payments, public records and so on.

In other words, Vantage Scores provide a credit score for consumers who never had a bank loan or credit card, but who have other payment obligations.

While more lenders are embracing Vantage Score to offer financial products to under-served consumers, FICO is still king in the credit scoring world. Mortgage lenders who sell their loans to the secondary market, namely Freddie Mac and Fannie Mae, still rely on some version of FICO.

To keep your credit picture clean across the board, your best bet is to pay all monthly bills and debt obligations on time, and keep your outstanding credit card balances to a minimum!

Looking for mortgage and home buying guidance? Find an Exclusive Buyer Agent in your area today! Your EBA can refer you to local, trustworthy mortgage lenders, and help you throughout each step of the home buying process.