It is pretty common knowledge that a good credit score is important in getting a mortgage. But what is the minimum score that will be required? Your credit score is going to be a big factor. In fact, it can make or break your loan approval and carries the most weight when it comes to determining your mortgage rate.

Why are credit scores so important to mortgage lenders, you ask?

Well, they use credit score(s) to measure your payment default risk, coupled with things like down payment, income, assets, and property type. While credit scores aren’t perfect, and were even partially blamed for the most recent mortgage crisis, they do tell lenders a lot about you. Simply put, the higher your score, the lower your interest rate, and the more loan options you’ll have. So be sure to get it right!

Are mortgage credit scores different?

Mortgage lenders use FICO scores just like other finance companies. But pull one version from each of the three major credit bureaus. To create what is known as a tri-merge credit report. The mid-score is used for qualifying and mortgage rate purposes

First and foremost, you might be wondering which credit score mortgage lenders use, seeing that there’s no sense focusing on something they won’t actually look at to determine your creditworthiness.

I’ll save you the suspense. The short answer is FICO scores, which are the industry standard and relied upon by just about everyone.

I think something like 9 out of 10 lenders use FICO, and it’s pretty much 100% in the mortgage world.

As for the version of FICO, I don’t know if any mortgage lenders use the newer FICO 8 or FICO 9 scores, which are the latest iterations available, because they tend to upgrade slowly to avoid any unwelcome risk.

This also explains why FICO is pretty much the only game in town – it’s hard to change the status quo because there are a lot of moving parts (and investors) in the mortgage space, so one seemingly small alteration could have major ramifications.

FHFA director Mel Watt, whose agency oversees Fannie Mae and Freddie Mac, recently noted that any credit score model change would not go into effect before 2019.

And he didn’t sound optimistic that there would be a change, despite the introduction of a bill called “The Credit Score Competition Act of 2017” that wants other credit scoring models to be considered.

While it might sound unfair to only allow one company to score mortgage applicants, it does mean that consumers should focus on their FICO scores since they seem to be the only ones used by lenders, at least for the moment.

That being said, those other scores you receive for free often aren’t the same as the ones the lenders pull, though they’re typically not far off.

So they can be beneficial to give you an estimate of where you stand. Just don’t be surprised if they’re a bit different.

And notice I wrote scores, not score.  There are three FICO scores you need to be concerned with, including one from Equifax, one from Experian, and one from TransUnion, which are the three main credit bureaus, as seen in the table above.

Don’t expect a mortgage lender to only use Experian, or only use TransUnion, like some credit card issuers might do. This is a big loan so they’ll want to assess risk across as many platforms as possible.

The models in that table above tend to be the most commonly used, though there are mortgage industry-specific versions of FICO scores as well that may come into play.

The credit scores range from a low of 300 to a high of 850. The higher you score the better, though you don’t need a perfect score to get approved for a mortgage, or to obtain an excellent rate.

Ruth Schoenherr is a mortgage broker who will help you find home loans in the Clearwater, Palm Harbor, Largo, Safety Harbor, St Petersburg and Tampa Bay area. For more information, go to her web site at www.ClearwaterMortgageBroker.net or call at 727 447-2418.