What FICO Scores Are Mortgage Lenders Using?

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As I mentioned before, I have been on a refinancing frenzy. My wife and I have refinanced our house twice in the past 12 months, and my business partner and I are doing the same with three rental properties. With lowest mortgage rates, these offers were just too good to ignore. And it got me thinking: what credit scores do mortgage lenders use to qualify people for a mortgage?

This is an important question, because your credit score determines your mortgage rates or even if you qualify for a loan. Although it is common knowledge that mortgage lenders use FICO scores, most people with credit histories have three FICO scores, one from each of the three national credit bureaus (Experiential, Equifax and TransUnion). Do lenders average the three scores or do they take another approach? And what happens when two people buy a house together? Do lenders average their scores together?

advice: Get the 3 FICO scores of the main offices directly from myFICO

So I did some research on the following questions:

  • What FICO formula (there is more than one, unfortunately) do mortgage companies use?
  • For a single candidate, which of the three FICO scores will be taken into account?
  • For spouses, relatives or business partners, how do lenders assess creditworthiness?
  • And finally, what if a candidate doesn’t have FICO scores from all three credit bureaus?

Since most of the loans are sold to Freddie Mac or Fannie Mae, I focused on the requirements of these types of loans.

What FICO score is used for mortgages

Most lenders determine a borrower’s creditworthiness based on FICO® scores, a credit score developed by Fair Isaac Corporation (FICO ™). This score tells the lender what type of credit risk you are and what your interest rate should be to reflect that risk. FICO scores have different names in each of the three major credit reporting companies in the United States. And there are different versions of the FICO formula. Here are the specific versions of the FICO formula used by mortgage lenders:

  • Equifax 5.0 Beacon
  • Experian / Fair Isaac Risk Model v2
  • FICO TransUnion 04 Risk Rating

If you want to dig into the regulations for Freddie Mac and Fannie Mae to see the source of this information, you can do so. here and here. But beware, it’s like trying to drink water from a fire hose.

Lenders have identified a strong correlation between mortgage performance and FICO office scores (FICO score). FICO scores range from 300 to 850. The lower the FICO score, the greater the risk of default.

Resource: Get all 3 FICO scores from major bureaus directly from myFICO

What Fico Score Do Mortgage Lenders Use?

Since most people have three FICO scores, one for each credit bureau, how do lenders decide which one to use?

For a FICO score to be considered “usable” it must be based on adequate and concrete information. If there is too little information, or if the information is inaccurate, the FICO score may be considered unusable for the mortgage underwriting process. Once the underwriter has determined whether or not a score is usable, here’s how they decide which score (s) to use for an individual borrower:

  • If the three scores are different, they use the middle score
  • If two of the scores are the same, they use that score regardless of whether the two repeated scores are above or below the third score

If it helps to visualize this information:

Identification of the subscription score
Example Note 1 Note 2 Note 3 Subscription rating
Borrower 1 680 700 720 700
Borrower 2 640 660 640 640
Borrower 3 640 660 660 660

What scores are used with two candidates

If there is more than one candidate, the scores to be used for each person are calculated as described above. Once the scores for each applicant are determined, the mortgage lender uses the lower of the two credit scores.

What to do 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 this case, the mortgage lender will simply use the lower of the two available scores. And if two scores are not usable, they will use the only remaining score.

And since you might be wondering if a mortgage applicant doesn’t have usable FICO scores, they generally won’t qualify for a mortgage. I usually say because there are exceptions. If you fall into this category, contact a mortgage broker to find out what options are available to you.

Obtaining FICO scores

If you are looking to buy or refinance your mortgage, how do you get an overview of your credit scores before you apply? Well one option would be to get your official FICO score from myFICO– where you can actually get credit scores from the three major bureaus.

There are several ways to get your free credit score, this is where I would start. They are not perfect, but in my experience they are quite close.

If you are looking for an easy way to increase your score, sign up on Experian Boost ™. This service is free and can see when you make your monthly payments like your utility bill and your cell phone bill on time. When you do, your FICO® score may be increased.

Experian Boost Disclaimer – Results may vary. Some may not see improvement in scores or chances of approval. Not all lenders use Experian credit files, and not all lenders use Experian Boost impacted scores.

Learn more: Read our Experian Boost review

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