Mortgage Lenders Look At Your FICO Credit Score & Here’s Why

One of the most crucial factors that will determine your ability to secure a mortgage is your credit score. You may have come across various credit monitoring platforms like Credit Karma . However, when it comes to mortgage applications, lenders typically look at a different scoring model known as the FICO credit score. In this blog, we’ll delve into why mortgage lenders prioritize the FICO score and address some common questions regarding credit scoring.

Why FICO Scores Matter to Mortgage Lenders

While Credit Karma uses the VantageScore model, many mortgage lenders rely on FICO scores. Both scoring models utilize similar data but assign different weightings to various factors, leading to variations in scores. 

When it comes to mortgage considerations, focusing on your FICO score is smart for several reasons. The FICO score is specifically tailored to predict credit risk for mortgage lending purposes, making it a more accurate indicator of your creditworthiness in the eyes of lenders. Through FICO’s specific criteria, factors include a borrower’s history of payment, level of debt, length of credit history, types of credit, and recent credit behavior. These collectively shape a borrower’s “score”, which the lender uses in their decision-making process, in housing in particular and many other industries that involve credit during large purchases. 

Common FICO Credit Score Questions

Why do my Credit Karma score and FICO score differ?

The variance between your Credit Karma score and FICO score can be attributed to the different algorithms and weightings each scoring model employs. While Credit Karma primarily utilizes the VantageScore model, mortgage lenders rely on FICO scores. Each model places varying emphasis on different factors, such as payment history, credit utilization, and length of credit history, leading to disparities in scores.

Eric Portnoy, VP Eastern Regional Sales Manager at NewFed Mortgage, aptly explains the distinction between the credit scores you see on platforms like Credit Karma and the scores utilized by mortgage lenders: “Both FICO and VantageScore utilize some overlapping data but apply different weightings, which poses the challenge of interpretation. In our view, the credit score that lenders utilize holds the most significance. Particularly for mortgage considerations, focusing on your FICO score is advisable.”

How do mortgage lenders assess my FICO score?

Mortgage lenders consider several factors when evaluating your FICO score, including:

  • Payment history: 35%
  • Level of debt/amounts owed: 30%
  • Age/length of credit history: 15%
  • Types of credit/credit mix: 10%
  • Credit inquiries/new credit: 10%

For reference, the most recent version of VantageScore (4.0) uses the following 6 factors:

  • Payment history: 41%
  • Depth of Credit: 20%
  • Credit Utilization: 20%
  • Recent Credit: 11%
  • Balances: 6%
  • Available Credit: 2%

These components collectively provide lenders with insights into your credit management habits, debt obligations, and overall financial responsibility, crucial factors in determining your eligibility for a mortgage loan.

Portnoy’s insights further illuminate the process: “Understanding these differences sheds light on why the scores seen online may differ significantly from those provided by loan officers during mortgage applications.” While Credit Karma offers a valuable tool for monitoring your credit health, it’s essential to recognize that mortgage lenders prioritize FICO scores when assessing your eligibility for a home loan.

As you prepare to embark on your homeownership journey, heeding Eric Portnoy’s advice, and understanding the nuances between credit scoring models, prospective homebuyers can navigate the mortgage landscape with confidence. Remember to prioritize your FICO credit score and how its significance to mortgage lenders can significantly impact your ability to secure a favorable mortgage loan. By cultivating healthy credit habits and staying informed about your credit profile, you can position yourself for success in achieving your homeownership dream.

As always, contact one of our housing professionals at NewFed Mortgage if you have any questions about the current market or more information about how your FICO score is the preferred credit score for mortgage lenders. 

Top News Stories