Which FICO Score Do Mortgage Lenders Use?

by William Pirraglia, Demand Media
    Most mortgage lenders use the middle credit score to evaluate prospective borrowers.

    Most mortgage lenders use the middle credit score to evaluate prospective borrowers.

    When you apply for a mortgage, lenders request a "tri-merged" credit report. Instead of getting your report from one of the three credit bureaus, mortgage lenders receive a combined credit report. This is a merger of the data from all three credit bureaus. However, each also has its own credit score. Mortgage lenders typically use the middle score for your application decision.

    Why Three Scores

    Most people call all credit scores "FICO scores," since FICO was the first source of credit scoring. However, each of the three credit bureaus uses different -- but similar -- scoring software. In addition, the three credit bureaus often have different, hopefully only slightly different, information. They shouldn't, but they do. The combination of different scoring software and information results in three distinct scores.

    Why Scores Are Different

    You might think that all three credit scores, even if different, would be very close. Not so. There can be differences as large as 50 to 75 points, higher or lower. For example, two bureaus might report scores of 685 and 700, yet the third might show 635. You read the credit report and learn that the third bureau shows an unpaid IRS tax lien, while the others do not. Whether true or erroneous, this entry depresses one score, but has no effect on the other two.

    Logic of Using the Middle Score

    Mortgage lenders understand that credit bureau information is not as consistent or identical as it should be. Like figure skating judges at the Olympics, they "throw out" the high and low scores, and use the middle score as the most representative reflection of your credit standing. The logic is sound; the credit bureau data, often, is not. This reality reinforces the advice to examine your three credit reports at least once per year to ensure that harmful, erroneous data is not present.

    Why Mortgage Lenders Depend on Credit Scores

    You, like many consumers, may dislike the apparent dependency on credit scores for loan and mortgage decisions. However, the statistics support their use. For example, the AARP Public Policy Institute did an extensive study and found an unmistakable and direct correlation between mortgage delinquency and credit scores. For example, those borrowers with a credit score between 550 and 599 had delinquency rates over 50 percent. Conversely, homeowners with a credit score between 700 and 749 recorded delinquencies of only 5 percent. Using a middle credit score offers mortgage lenders the comfort of conservatism and the benefit of using verified statistics that predict potential of timely repayment.

    Whose Score Will Lenders Use

    When you make a joint mortgage application, lenders could be evaluating as many as six credit scores -- three for each of you. While most lenders consider the applicant with the highest monthly income as the primary borrower, they often take the lowest middle credit score of both borrowers as their benchmark. While frustrating, this is just another example of conservative lending policy.

    About the Author

    For 34 years Bill Pirraglia served as a senior executive in the banking industry. Since 2005, he has authored articles, blog entries, tips and advice columns, SEO web copy and two published books. He specializes in personal and business finance topics, along with legal articles for clients large and small.

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