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Understanding Credit Scores for Mortgage Applications

At O1ne Mortgage, we understand that navigating the mortgage application process can be complex. One of the key factors in securing a mortgage is your credit score. In this article, we will break down the credit scores mortgage lenders use, what constitutes a good credit score, and how you can improve your credit before applying for a mortgage.

Which Credit Scores Do Mortgage Lenders Use?

Mortgage lenders typically use FICO® Scores from each of the three major credit bureaus: Experian, TransUnion, and Equifax. These scores are often referred to as:

• FICO® Score 2 (Experian/Fair Isaac Risk Model v2)
• FICO® Score 5 (Equifax Beacon 5)
• FICO® Score 4 (TransUnion FICO Risk Score 04)

Lenders usually obtain a “tri-merge” report that includes your credit reports and scores from all three bureaus. They may use the middle score or, if applying jointly, the lower middle score of the two applicants.

Upcoming Changes to Credit Score Requirements

Starting in the fourth quarter of 2025, the Federal Housing Finance Agency (FHFA) will require lenders to use newer credit scores, specifically FICO 10 T and VantageScore 4.0. These newer models consider additional data, such as rental payments and trends in credit history, which can provide a more comprehensive view of your creditworthiness.

Do All Mortgage Lenders Use the Same Credit Scores?

Not all mortgage lenders use the same credit scores. While many conform to the GSEs’ requirements, some lenders may use different scores, especially for non-conforming loans like jumbo loans. It’s important to check with your lender to understand which scores they use.

What Is a Good Credit Score to Buy a House?

A higher credit score can help you secure a lower interest rate. Here are the minimum credit scores typically required for different types of mortgages:

• Conventional loan: 620
• Jumbo loan: 700
• FHA loan with 10% down: 500
• FHA loan with less than 10% down: 580
• VA loan: 620 (varies by lender)
• USDA loan: 580

Other Factors Mortgage Lenders Consider

Besides your credit score, lenders also look at:

• Credit history: Recent bankruptcies, foreclosures, and collection accounts can impact your application.
• Employment and income: Lenders prefer stable income and may require tax returns and pay stubs.
• Mortgage reserves: Having liquid assets to cover mortgage payments in emergencies is crucial.
• Loan-to-value ratio (LTV): This compares the loan amount to the home’s value. A lower LTV can help you avoid private mortgage insurance.

How to Improve Your Credit Scores Before Applying for a Mortgage

Improving your credit score can increase your chances of securing a mortgage with favorable terms. Here are some tips:

• Pay your bills on time to avoid late payments.
• Reduce your credit card balances to lower your credit utilization ratio.
• Avoid applying for new credit to prevent hard inquiries and increased debt-to-income ratio.

Additionally, saving for a larger down payment and paying off existing debts can improve your financial profile.

Monitor Your Credit When Looking for a Home

While free credit score services may not provide the exact scores used by mortgage lenders, monitoring your credit report and score can help you stay informed. Consider using a premium credit monitoring service for more detailed insights.

For personalized mortgage services, call O1ne Mortgage at 213-732-3074. Our team of experts is here to help you navigate the mortgage process and secure the best terms for your new home.

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