Do Mortgage Lenders Use FICO Scores to Approve Borrowers?

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Reader question: “I recently ordered my credit scores from two of the reporting agencies, TransUnion and Equifax. Then I read somewhere that mortgage lenders don’t even look at those scores, that they use the FICO numbers instead. Is this true? Do mortgage lenders use FICO scores to approve borrowers?”

The short answer is yes, most lenders these days will obtain FICO credit scores when reviewing a borrower’s loan application, and also for underwriting purposes. And the scores the lender sees might be different from the ones you got from TransUnion and Equifax (since the reporting bureaus use their own scoring model).

Most Mortgage Lenders Use FICO Scores

That’s the short answer. The longer answer is that the mortgage application, underwriting and approval process can vary from one lender to the next. They all have their own unique business models and procedures. So the credit review process can vary as well.

With that being said, most of the mortgage lenders I’ve spoken to in the past have said they use the FICO score when pre-approving or approving borrowers for home loans.

Different Scoring Models

There are different credit-scoring models out there. I won’t list them all here because, frankly, it becomes utterly confusing. The two most prominent credit scores are FICO and VantageScore. The FICO scoring model was created by the Fair Isaac Corporation. The VantageScore is a scoring system jointly used by three credit-reporting bureaus (TransUnion, Equifax and Experian).

Most mortgage lenders use FICO scores when reviewing applicants and for underwriting the loan. In fact, banks and lenders are FICO’s primary customer base. The company develops and markets their scoring products specifically to lenders, as a risk-analysis tool.

Mortgage lenders use FICO scores to determine your credit risk (i.e., the likelihood you will default on your loan down the road). They also use them to determine the interest rate they are willing to offer you. Home loans use risk-based pricing.

  • Borrowers who are perceived as a higher risk to the lender usually end up with higher mortgage rates to offset the risk.
  • Borrowers with higher FICO scores are viewed as less of a risk, and typically qualify for lower interest rates.

The FICO scoring range goes from 300 to 850, with higher being better.

Why the VantageScore Causes Confusion

Now here’s where things get a little confusing. You actually have three FICO scores, one for each of the three credit-reporting bureaus mentioned earlier (Experian, TransUnion and Equifax). The information collected by the credit bureaus gets processed through the FICO scoring system — think of it as a software program — to produce a FICO score. But that information can also be processed through the VantageScore scoring program, resulting in a different number.

Most mortgage companies will use all three of your FICO scores when evaluating your home loan application. And you could have a different number for each of the reporting bureaus. When three scores are available, the lender will probably use the middle number for loan underwriting and approval . When only two scores are available, they’ll generally use the lower number since it has likely factored in all negative information that is available. Again, it varies.

Seeing What the Lender Sees

The bottom line is that the scores you get when obtaining them directly from the credit bureaus is probably a VantageScore, and therefore it might be different from the FICO scores used by mortgage lenders. It’s the same underlying information, processed through two different scoring systems.

That’s as clear as I can make it, because the whole credit-reporting industry is a self-serving and confusing mess (in the author’s humble opinion).

If your goal is to see the credit score used by mortgage lenders when considering you for a loan, then you should probably be looking at your FICO score. Chances are, that’s the one your lender will use when reviewing your application, setting the interest rate, etc.

Disclaimer: This article answers the question: Do mortgage lenders use FICO scores to approve borrowers? This information has been provided for educational purposes and might not apply to your specific situation. The mortgage underwriting and approval process can vary widely from one lender to the next. The best way to find out how a particular lender handles the credit score review process is to ask them directly.