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Do Mortgage Lenders Use FICO?

Before a lender approves your loan, a detailed check will be done regarding your credit score and creditworthiness. To evaluate your credit risk, lenders use different tools, and if you were wondering whether mortgage lenders use FICO to approve your loan, here is the answer!

Do mortgage lenders use FICO scores? Most mortgage lenders use FICO scores. FICO is used by mortgage lenders as one factor in their assessment of a potential borrower’s credit risk. Lenders don’t exclusively use FICO scores, but they are a common measure of credit risk.

FICO scores include estimation of payment history, the current level of indebtedness, the types of credit the client has used, length of credit history, and new credit accounts. The FICO score can range from 300 to 850, and a good score is considered to be from 670 and up.

What Is Exactly FICO Credit Score? 

The FICO credit scoring system gives businesses and financial institutions a reliable way of determining the clients’ credit risk, or more precisely, how likely the borrower is to repay the debt.

It is a program developed by Fair Isaac Corporation, which is used by 90% of all lenders, and which releases a new version every few years. 

There are several different FICO scores, and depending on the loan you’re asking for and the lender you are negotiating with, the scores will vary. Here are the additional scores that lenders could ask you to provide them with:

  • Experian – known as FICO 2,
  • TransUnion – known as FICO 4
  • Equifax – known as FICO 5

Also, there are some newer versions like FICO 8, which is typically used for auto loans and credit cards. On top of that, FICO 8 provides borrowers with more advantages by not counting specific details into the reports. For instance, this report won’t include lateness with one payment of 30 days or more, which could boost your digits. 

What Credit Scores Will the Lender Pull Once You Apply for a Mortgage Loan? 

When you apply for a mortgage loan, lenders will typically ask you for all three reports that come from Experian, TransUnion, and Equifax. Those three reports will be bundled into one report afterward, and this report will usually be based on your middle score. 

Let’s say your Experian score is 660, TransUnion 680, and Equifax 700 – this means that the number that will be counted will be that of 680 – which is the middle result. 

However, if you plan to apply jointly with your spouse, keep in mind that the lender will consider reports from both of you. In this case, the lender will take the lowest middle score as an indicator for estimating the risk

For instance, if your scores are 660, 680, and 700, but your spouse’s numbers are 590, 610, 630, the lender will take into account the lowest middle result of those six, which would be 610. So if you’re applying for one of the loans with a specific requirement, make sure to follow the rules; otherwise, you could be denied.

How Do Mortgage Lenders Use FICO to Calculate Scores?

There are many different data that affect your creditworthiness. However, with FICO scores, in the end, all this information is categorized into five groups: 

  • Payment history – 35%

As expected, the lender will want to know how regularly you have paid your previous installments.

  • Amounts owed – 30% 

This category will show what amounts you have in total combined on all existing accounts.

  • Length of credit history – 15% 

FICO will indicate to the lender the length of your credit history, specifically for how long your accounts have been established. 

  • New credit – 10%

When it comes to new credits, this information will show how often you have applied and been approved for loans.

  • Credit mix – 10%

The report on the credit mix includes data about a mix of cards, installment loans, retail accounts, mortgage loans, and finance companies’ accounts. 

However, keep in mind that these reports are not the only information lenders use to estimate your credit health. Other factors that can have an important role in the loan approval are details like:

  • Your annual income, 
  • Employment history, 
  • The value of collateral such as your home or car, 
  • Any existing relationships the lender has with you. 

The Higher the FICO Score, the Greater the Chances of Getting the Loan and the Amount of Money You Need

Lenders often use FICO® scores to set loan terms, such as the amount of money they’ll give you or the interest rate. This is the main reason why you should keep your credit score high. Here are the numbers that are desirable for a positive response to requests for loans.

Credit Score RangesRatingDescription
800+ExceptionalThis result indicates to the lender that the potential borrower brings an exceptionally low risk. 
740-799Very GoodThis result is considered above-average and shows the borrower is very reliable. 
670-739GoodThis range is slightly above the average and still considered a good score that gives the lender enough reason to approve loans. 
580-669Fair Although below the average, borrowers within this range usually can get loans approved. 
<580PoorThis score shows that the potential borrower may be a risk to cooperate with. 

Keep Your Credit Score High, and You Won’t Have Any Difficulties With a Mortgage Loan Approval 

Keeping your score high is not always an easy task. However, it’s not impossible. Just make sure to take care of the factors the lenders pay attention to and don’t go for sums you know at some point in the future could be difficult to cover.

Although there is a set of different data the FICO system uses to estimate your creditworthiness, keep in mind that the final decision is always made by the lender. And don’t despair in case you’re denied.

In the end, there are many different lenders that will approve your request and pave the way for you to your first home.