When you apply for a mortgage, you can be sure your potential lender will closely review your credit and your credit score. One of the most commonly used credit scores is known as your FICO score, a scoring model created by the Fair Isaac Corporation.
Your FICO score is determined by taking account of several different factors including:
In the mortgage industry, many lenders use a minimum FICO score. This means your application won’t even be considered if your score falls below their minimum score. The minimum can vary from one lender to another, but a FICO score below 670 may result in not being able to obtain the best rates.
Types of FICO Scores
There are actually several different versions of FICO scores because the Fair Isaac Corporation periodically updates algorithms and calculation methods. FICO score 8, the eighth version of the FICO score, is still the most widely used credit score for general lending decisions even though there are newer versions including FICO 9.
FICO 8 may be used for different types of credit, including auto loans and bank card loans. While it’s sometimes used in the mortgage industry, mortgage lenders most often use FICO 2, 4, and 5 to help determine creditworthiness. Each of these is built on data from one of the credit bureaus. FICO 5 is built on data from Equifax, while FICO 4 is built on data from TransUnion, and FICO 2 is built on data from Experian. Each of these versions is very similar to the others, but there may be small differences since some lenders only report to one of the credit bureaus.
Mortgage lenders are likely to base their decisions on a residential mortgage credit report, which combines FICO scores 2, 4 and 5. This report contains other information as well, such as employment and residential history. A mortgage lender may consider the middle of the three different credit scores found on a tri-merge report.
Understanding Your Credit Score
Since a good FICO score can be so important in credit decisions, you need to always have a good idea of where things stand with your credit score. You should also be familiar with what’s on your credit report and whether there’s any information on it that isn’t correct. Consumers are entitled to a free credit report each year from AnnualCreditReport.com.
You can improve your credit score by always paying bills on time and getting in the habit of not using a lot of your available credit. It’s also important to promptly dispute any inaccuracies on your credit report. Need some help with this process? Dovly is an advanced credit repair company that handles disputing and maintains your credit report for you. When negative items are removed from your credit report, you’ll see your scores increase, putting you in a better position to be approved for a mortgage. Contact Dovly today to find out more.