Your Credit Score’s Impact on the Mortgage Process

Worried your credit score isn’t high enough to qualify for a mortgage? Knowing which credit score mortgage lenders use may help clarify what kind of offers and loan options could be available. But with multiple scoring models in use, figuring out which scores lenders rely on can be confusing.

The good news: identifying the right credit score isn’t the only key. Understanding how scoring models work and what lenders value most can simplify your credit goals. Read on to learn which scores matter, how scoring models work and some tips to secure a more affordable mortgage.

Why do credit scores matter for mortgages?

Credit scores, a numerical representation of a person’s creditworthiness based on their credit history, can play a starring role in the mortgage application process. Why? Two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, guarantee most mortgages in the U.S. A GSE guarantee reduces lender risks, making mortgages more affordable and accessible.

Loans that don’t meet GSE standards are often more expensive. To qualify for a GSE-backed mortgage, you usually need to have a credit score of at least 620. So, your credit score isn’t just a number. It can also be a path to an affordable 30-year fixed-rate mortgage. For loan programs that involve higher risk like lower down payments or higher debt-to-income (DTI) ratios, the minimum score may need to be higher (more in the 660 to 680 range.) However, the exact score requirement can depend on the lender and loan program.

Which credit score do mortgage lenders use?

Nearly all top U.S. lenders use FICO® Scores.  Lenders grab the scores from the three main credit bureaus (Equifax, Experian and TransUnion) and may zero in on your middle score – or the second highest of the three. If you’re applying with a partner, they might use their second highest score if it’s lower.

The FICO® Score 8 is the score generally used for lending decisions by banks, but mortgage lenders primarily use FICO® Score 2, FICO® Score 5, and FICO® Score 4. If you are applying with a co-signer, both individual’s FICO® Scores will be pulled, and the lender will determine the median score for both applicants. They will use the lower of those two.

What about credit scoring models?

The Classic FICO® scoring model is the standard currently. A new scoring model that factors in rent and utility payments called the FICO® Score 10T was proposed and approved by The Federal Housing Finance Agency (FHFA), but as of January implementation has been delayed for the foreseeable future. New models may be introduced but the FICO® Score remains the primary one used by lenders.

Do credit checks hurt your score?

Usually, when you check your own credit, it’s a freebie – no impact! But when lenders check, it is considered a hard inquiry and can bring your score down slightly (around 5 points or less and the drop is temporary). The cool part? Multiple credit checks for the same type of loan within (typically 14 to 45 days) won’t dent your score as they are treated as a single inquiry. You can explore your options confidently during that time window.

Should you avoid other loans before getting a mortgage?

Yes. Car loans or credit card applications can temporarily lower your score, making lenders more cautious as they review your credit history. Keeping your credit profile free of recent applications shows lenders you’re financially steady and ready for a mortgage. Save new credit applications until after your mortgage approval to keep your score in top shape.

How can you improve your credit score for a mortgage?

Improving your credit score doesn’t have to be a mystery. Here are four simple strategies to boost your numbers and impress lenders:

1. Pay your bills on time, even the minimums.
2. Keep your balances low and your credit limit high.
3. Stick with older accounts for a solid history.
4. Mix it up over time. Credit cards, car loans and student loans can add variety.

These consistent, responsible credit behaviors can give your score the boost it needs to secure a mortgage you’re proud of.

Mortgage lenders may look beyond your credit score

Though your credit score is of the utmost importance to lenders they take other factors into account. Lenders will consider income, collateral and DTI amongst others. Keeping your financial health intact by regularly reviewing your credit report and paying off any outstanding debts will help ensure your chances are as strong as possible when you apply for a mortgage.

Disclaimer: This content is sponsored by MyFICO® and is provided for informational purposes only. The information shared here is not intended to serve as financial, legal, or credit-related advice. Readers are encouraged to consult with their personal financial advisors or credit professionals to assess their specific situation. To learn more about MyFICO®’s services, including credit scores and monitoring tools, please visit the MyFICO® website or reach out to a MyFICO® representative.

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Name: Sonakshi Murze
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