The best-known credit scores are going to fall under either the FICO or VantageScore brands. There are multiple generations of each score brand, as every few years, the score developers create newer versions. So, for example, there’s a VantageScore 1.0, 2.0, 3.0, and 4.0.
In most lending environments outside of mortgages, it’s hard to know which specific credit score a lender will use to evaluate your application. And, even if you knew your lender used a FICO Score or a VantageScore credit score, you still would not know which generation of the score it is using.
For example, you may apply for an auto loan with one lender that checks your FICO Auto Score 8 based on your Experian credit report. Yet, if you apply for financing with a different auto lender, it may opt to check your VantageScore 3.0 score based on TransUnion data.
The only way to know for sure is to ask the lender which credit report and which credit score version it plans to check, but that isn’t a guarantee that they’ll tell you.
The mortgage industry is different. Because of the aforementioned FHFA mandate, mortgage lenders must use the following versions of FICO’s scoring models:
FICO Model | Description |
|---|---|
| FICO 9 | Newest version. Not widely used. |
| FICO 8 | Most common. Used for Auto and Bankcard lending. |
| FICO 5 | Used by mortgage lenders. Built on data from Equifax. |
| FICO 4 | Used by mortgage lenders. Built on data from TransUnion. |
| FICO 2 | Used by mortgage lenders. Built on data from Experian. |
- Experian: FICO Score 2, sometimes referred to as FICO V2 or FICO-II
- TransUnion: FICO Score 4, sometimes referred to as FICO Classic 04
- Equifax: FICO Score 5, sometimes referred to as BEACON 5.0
Why Do Mortgage Lenders Use Older FICO Scores?
The reason mortgage lenders use older FICO Scores is because they don’t have a choice. They are essentially forced to use them.
Unlike every other industry, mortgage lenders don’t have the flexibility to choose the scoring model brand or generation they want to use. Mortgage lenders must follow the direction of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, as it pertains to scoring models.
The GSEs play an important role in mortgage lending. These publicly traded companies buy mortgages from banks, bundle them together, and sell them to investors. This frees up funds so that banks can offer new mortgages to additional homebuyers.
For a bank to sell a mortgage to Fannie Mae or Freddie Mac, the loan has to meet certain guidelines. Some of these guidelines require borrowers to have a minimum credit score under specific FICO Score generations.
If a lender uses a different scoring model other than what the GSEs approve when it underwrites a mortgage, it probably won’t be able to sell that mortgage after it issues the loan. This limits the lender’s ability to write new loans because it will have less money available to lend to future borrowers
When applying for a mortgage in Kentucky, it's crucial to understand that lenders utilize specific FICO® score models tailored for mortgage underwriting. These models differ from the scores commonly accessed through consumer credit monitoring services.
FICO® Score Models Used by Kentucky Mortgage Lenders
Mortgage lenders in Kentucky, consistent with industry standards, rely on the following FICO® score versions: mylouisvillekentuckymortgage.com
-
FICO® Score 2 – Derived from Experian data
-
FICO® Score 4 – Based on TransUnion data
-
FICO® Score 5 – Utilizes Equifax dataI nvestopedia Direct Mortgage Loans
These are collectively known as the "classic" FICO® models and are mandated for use in underwriting loans backed by entities such as Fannie Mae, Freddie Mac, FHA, VA, and USDA
.mylouisvillekentuckymortgage.com+1Louisville Kentucky Mortgage Loans+1
Importance of the Middle Credit Score
Lenders typically obtain a tri-merge credit report, encompassing scores from all three major bureaus. The middle score—the one that falls between the highest and lowest—is used to assess your creditworthiness. For joint applications, the lower middle score between co-borrowers is considered.
Investopedia+2Louisville Kentucky Mortgage Loans+2kyfirsttimehomebuyer.wordpress.com+2
Discrepancies Between Consumer and Mortgage Credit Scores
It's common for consumers to notice differences between the credit scores they access through services like Credit Karma and those used by mortgage lenders. This is because consumer platforms often provide scores based on models like FICO® 8 or VantageScore 3.0, which are not utilized in mortgage lending. These consumer scores can be 20–40 points higher or lower than the mortgage-specific scores
Strategies to Enhance Your Mortgage Credit Score
To improve your mortgage-specific FICO® scores:
-
Maintain Low Credit Utilization: Aim to keep your credit card balances below 30% of your credit limits.
-
Limit New Credit Inquiries: Avoid applying for new credit lines 30–60 days before seeking mortgage pre-approval.
-
Address Inaccuracies: Dispute any incorrect information on your credit reports directly with the credit bureaus.
-
Prioritize Paying Down Revolving Debt: Reducing balances on credit cards can positively impact your scores.
Link to article below
https://www.badcredit.org/how-to/which-fico-score-do-mortgage-lenders-use/
