• Ben Stiller
• Jan 04, 2024
• Mortgage Lenders
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Credit scores play a pivotal role in determining whether lenders extend capital to would-be borrowers. The evaluation of “creditworthiness” is an intricate process. This article helps to shed light on the relationship between mortgage lenders and various credit scores, particularly FICO scores.

What Credit Score Do Mortgage Lenders Use?

FICO Scores, produced by the company of the same name, form the backbone of credit assessments for lenders. However, not all FICO Scores are created equal. Two primary versions, FICO Score 5 and FICO Score 8 take center stage in the lending arena, each serving distinct purposes.

FICO Score 5: The Mortgage Industry's Choice

FICO Score 5, commonly employed in the mortgage and auto loan sectors, employs a multifaceted approach to assessing creditworthiness. Its components and weightings include payment history (35%), accounts under your name (30%), credit history length (15%), new credit (10%), and credit mix (10%).

What sets FICO Score 5 apart is its comprehensive data gathering. Beyond the typical factors, it delves into employment history, medical accounts, and residential history. This meticulous scrutiny is crucial for mortgage lending, where large sums are at stake, leading lenders, especially banks, to prefer FICO 5 over other versions.

FICO 5 draws exclusively from Equifax, one of the major credit bureaus, while other versions like FICO Score 2 and FICO Score 4 may be sourced from Experian and TransUnion. Compiling these scores results in what is known as a residential mortgage credit report, with the lender often relying on the middle score for decision-making.

FICO Score 8: The Credit Card Issuer's Choice

Introduced in 2009, FICO Score 8 maintains consistency with older models while adding features that enhance predictive capabilities. Widely adopted by credit card issuers, FICO 8 focuses on conveying how responsibly individuals handle debt. FICO 8 introduces sensitivity to highly utilized credit cards and treats isolated late payments more judiciously than its predecessors. The score also categorizes consumers more granularly to provide a nuanced representation of risk, differentiating those with limited credit history from those with robust credit backgrounds.

In contrast to FICO 5, FICO 8 pulls information from all three major credit bureaus—Equifax, Experian, and TransUnion. Additionally, it exhibits greater tolerance for infrequent late payments, especially if they are isolated occurrences and all other accounts remain in good standing.

Optimizing Your Credit Profile

When embarking on the mortgage application journey, understanding the nuances of FICO Scores becomes crucial. It's important to recognize that payment history, comprising 35% of the total score, holds the most significant impact on your FICO Score. Lenders prioritize this information to gauge the risk of approving your credit application.

What Credit Score Do Mortgage Lenders Use?

Most mortgage lenders rely on FICO Score 5, but it's wise to inquire about a lender's specific scoring model. Whether it's the meticulous scrutiny of FICO Score 5 in the mortgage industry or the nuanced risk representation of FICO Score 8 in credit card evaluations, borrowers must navigate this maze with awareness. Understanding how to shop for a mortgage, what to look for in a mortgage lender, and the credit scores lenders use are vital steps in ensuring a smooth journey towards homeownership.