If you are like most people, you probably think there is one FICO credit score and it’s the same for all lenders. This isn’t the case, though. You actually have three different FICO scores. You have a Trans Union, Equifax, and Experian credit score.
So how do lenders look at these scores? Keep reading to learn more about your credit scores and what you need to know.
Which Score do Lenders Use?
If you have three credit scores, how do lenders decide which one to use? Typically, they will use the middle score of the three. For example, if your Trans Union score is 685, Experian is 674, and Equifax is 695, the lender will use a credit score of 685 for qualifying purposes. Using the middle credit score throws out the high and low outliers, giving the lender a decent idea of your financial responsibility.
In some cases, though, there isn’t a middle credit score to use. This can happen if two of your credit scores are the same. Let’s say your Experian and Equifax are both 675 and your Trans Union score is 685. In this case, the lender would use the 675 score because it’s a repeated score.
FICO Scores for a Borrower and Co-Borrower
Now, let’s look at what would happen if you are applying for the mortgage with another borrower. Technically, the lender would have six credit scores to use for qualification purposes, but they only use the middle score from each borrower, as we discussed above.
Once the lender has the middle credit score from each borrower, they compare the scores to each other. The lender will take the lower middle credit score between the two borrowers and use that for qualification purposes.
Here’s an example:
Joe has credit scores of 675, 685, and 695
Jan has credit scores of 655, 665, and 675
Joe’s middle credit score is 685 and Jan’s middle credit score is 665. The lender would use Jan’s score to qualify you for the mortgage. This means the lower score of 665. Before you add a co-borrower to your loan application, it pays to know his or her credit score. If your partner’s middle credit score is lower than your score, you may want to try to qualify for the loan on your own.
Borrowers Missing a Credit Score
Sometimes you may not have a credit score from all three bureaus. Each bureau has their own requirements, which may mean that you don’t have a credit score from one bureau. If this is the case, the lender will look at the two credit scores that you have. The lender will then use the lower credit score of the two scores.
Borrowers With no Credit Score
While we’ve covered a lot of scenarios that you can come across with your FICO scores, there’s still one more – the absence of any credit scores. If you don’t have enough credit lines or haven’t had credit for any length of time, you may not have a credit score at all.
What do lenders do when you apply for a mortgage if you don’t have a credit score? Technically, they don’t have to process your application. Some lenders, though, do allow you to use alternative credit sources to prove your financial worthiness for the loan. You may be able to provide proof of any of the following in order to qualify:
- Rent history
- Utility payments
- Insurance payments
- Tuition payments
Typically, you must provide proof of three different payments for at least 12 months. Lenders prefer if you have proof of a housing payment, such as rent, but they will generally accept payments from any of the above. As long as you can provide proof of consistent and timely payments, it may help you secure the mortgage that you need.
Checking Your FICO Scores
Did you know that you could check your own FICO scores? They may not match exactly what the lender sees, but it can give you a general idea of where you stand. You can get your credit scores from a service, often provided free of charge from your bank or credit card companies. These services update your credit score monthly for your personal use.
Don’t confuse the credit score service with the free credit reports you have access to each year. From www.annualcreditreport.com you have access to each of your three credit reports once a year, free of charge. These credit reports don’t show your credit score, but rather show your credit history in detail. We recommend that you pull your credit report from each bureau one time per year (spread them out over a few months) so that you can ensure the accuracy of your credit history. This also gives you a chance to see what you may need to improve so that you have the necessary FICO score to get the loan you need.
Mortgage lenders need FICO scores to determine your ability to handle a mortgage. It’s in your best interest to maximize your FICO scores to ensure that you get the mortgage approval that you desire.