Which Credit Score Do Mortgage Lenders Use?
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If you’re wondering which credit score mortgage lenders use, the answer is all of them! Lenders will look at all of your credit scores when considering you for a loan.
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Mortgage Lenders Use Multiple Credit Scores
When you apply for a mortgage, the lender will pull your credit score from all three credit bureaus: Experian, TransUnion, and Equifax. They do this to get a more complete picture of your creditworthiness. The lender will then use the middle score to determine your interest rate and loan eligibility.
FICO Score 8
FICO Score 8 is the most widely used credit score among lenders, and is the score that you’re most likely to get when you request your credit score from a lender or credit scoring company.
FICO Score 8 is based on information from all of your credit reports, including your payment history, amount of debt, and length of credit history. However, FICO Score 8 ignores certain information that may be important to some lenders, such as collection accounts or judgments.
If you have a FICO Score 8 of 720 or higher, you’re considered to have excellent credit. A FICO Score 8 between 700 and 719 is considered good credit, while a score between 660 and 699 is considered fair credit. A FICO Score 8 below 660 is considered poor credit.
VantageScore 3.0
The VantageScore 3.0 is one of the most commonly used credit scores by mortgage lenders. This score was developed by the three major credit bureaus (Equifax, Experian, and TransUnion) in 2013. The VantageScore 3.0 is a scoring model that ranges from 300 to 850, with 850 being the highest score possible. A score of 740 or higher is considered to be excellent.
Mortgage lenders use multiple credit scores when approving a loan application. In addition to the VantageScore 3.0, they will also consider your FICO score and your credit history. The VantageScore 3.0 is just one factor that lenders use when making their decision.
The Differences Between FICO Score 8 and VantageScore 3.0
If you’re in the market for a mortgage, you may be wondering which credit score the lender will use to determine your eligibility and interest rate. The answer is: it could be either the FICO Score 8 or the VantageScore 3.0. While both are widely used, there are some key differences between the two.
Payment history
One of the most important factors in your credit score is your payment history. This measures whether you pay your bills on time. The FICO score weighs late payments more heavily than the VantageScore. So, if you have a couple of late payments on your record, your VantageScore 3.0 score could be higher than your FICO score 8.
Utilization
Utilization is the second most important factor in calculating your score, accounting for 30% of the total. This is the ratio of your credit card balances to your credit limits. Lenders like to see that you’re using a manageable amount of your available credit — below 30% is ideal, but 10% is a good target if you have high balances.
FICO Score 8: In FICO Score 8, utilization is based on all of your revolving accounts, including retail and installment loans.
VantageScore 3.0: In VantageScore 3.0, utilization is only factored in for revolving accounts — credit cards and lines of credit. Installment loans, such as auto loans and mortgages, are not included in this calculation.
Age of credit
One of the biggest factors in your credit score is the “age of credit.” This simply refers to the length of time you’ve had any type of credit product in your name. The longer you’ve had credit, the better. Mortgage lenders like to see a long and consistent history of borrowing and repayment because it shows them you’re likely to do the same with their loan.
The age of your credit accounts for 15% of your FICO score, and 10% of your VantageScore 3.0 score. So, if you have a long credit history, it’s one more way you might be able to improve your credit score.
Types of credit
There are many different types of credit and each has its own distinct features. The most common type of credit is revolving credit, which allows consumers to borrow against a line of credit up to a certain limit and then make monthly payments, which vary depending on the outstanding balance. Other types of credit include installment loans, such as auto loans or mortgages, and service contracts, such as cell phone plans.
The two most popular credit scoring models are the FICO Score 8 and the VantageScore 3.0. The FICO Score 8 is the most widely used credit score in the United States, while the VantageScore 3.0 is a newer model that is slowly gaining popularity. Both models take into account different types of information in order to calculate a score, but there are some key differences between them.
One major difference between the FICO Score 8 and the VantageScore 3.0 is the way that they treat different types of credit. The FICO Score 8 considers all types of credit equally, while the VantageScore 3.0 gives more weight to revolving credit than other types of credit. This means that if you have a lot of revolving debt, such as credit card debt, your VantageScore 3.0 will be lower than your FICO Score 8.
Another difference between these two scoring models is the way that they treat late payments. The FICO Score 8 forgives one late payment every 12 months, while the VantageScore 3.0 does not forgive any late payments. This means that if you have a late payment on your record, it will lower your VantageScore 3.0 more than it will your FICO Score 8.
Finally, another key difference between these two scoring models is the way that they handle inquiries from creditors. The FICO Score 8 penalizes you for every inquiry from a creditor, regardless of whether you end up opening a new account, while the VantageScore 3.0 only penalizes you for inquiries that result in a new account being opened
How to Improve Your Credit Score
Your credit score is one of the most important factors in getting approved for a mortgage. Mortgage lenders will look at your credit score to determine whether or not you are a good candidate for a loan. There are a few things you can do to improve your credit score. Let’s take a look.
Make all payments on time
One of the most important things you can do to improve your credit score is to make all payments on time. This includes credit card payments, utility bills, and any other type of bill you may have. Late payments can stay on your credit report for up to seven years, so it’s important to make sure you are always paying on time.
Another factor that is taken into consideration when determining your credit score is the types of debt you have. Having a mix of different types of debt, such as a mortgage, car loan, andcredit card debt, can actually help improve your credit score. This is because it shows creditors that you are able to manage different types of debt responsibly.
Finally, the amount of debt you have relative to your credit limit can also impact your credit score. This is often referred to as your “credit utilization ratio” and it basically measures how much of your available credit you are using at any given time. It’s generally best to keep your credit utilization ratio below 30%, but the lower the better.
Keep balances low on credit cards and other revolving credit
One of the most important things you can do to improve your credit score is to keep your balances low on credit cards and other revolving credit. When you use too much of your available credit, it sends a signal to prospective lenders that you’re at risk of defaulting on your obligations in the future. The lower your balances are, the higher your credit score will be. Conversely, the higher your balances are, the lower your credit score will be. So it’s in your best interest to keep those balances as low as you can.
Apply for and open new credit accounts only as needed
Opening too many new accounts in a short period of time can lower your credit score. New credit inquiries, whether you are approved or not, can also have a negative impact. Apply for new credit only when you really need it and space out your applications to minimize the impact on your score.
Check your credit reports regularly
You can get a free copy of your credit report from each of the three major credit reporting agencies – Experian, Equifax and TransUnion – once every 12 months. Regularly checking your reports can help you catch errors and ensure that your information is accurate. You can also check your credit score for free on Credit Karma.
If you see anything on your report that looks incorrect, you can file a dispute with the credit bureau. Be sure to include any supporting documentation that you have to back up your claim. The credit bureau will then investigate and, if they find that the information is indeed inaccurate, they will remove it from your report.
