What Credit Score do Mortgage Lenders Use?

A borrower’s credit score is the first thing you look at as a lender. It tells you if a borrower is a contender for your loan programs or needs to improve their credit to qualify. Each lender may use a different scoring models, but everyone has the same end goal. They want to ensure borrowers can afford their mortgage payments.

The Credit Score Lenders Use

Most lenders use the FICO scoring model. Many banks and lenders use FICO 8, which isn’t the most recent version, but it is the most popular. However, most mortgage lenders use different versions for each credit bureau:

• Trans Union: FICO Score 4
• Equifax: FICO Score 5
• Experian: FICO Score 2

No matter the scoring model, the same factors apply. Lenders care most about the borrower’s payment history, credit use, and credit mix. The higher a borrower’s credit score is, the easier it is to qualify them.

When a borrower doesn’t have the credit score to qualify, it doesn’t mean you must turn them away. There are ways to retain the applicant and help them through the situation.

How CreditXpert Can Help

CreditXpert can help borrowers understand how to improve their credit if they don’t quite meet the loan guidelines. Being able to help borrowers understand where they can make changes to get the necessary credit score for approval can give you a leg up on the competition and allow you to retain your leads.

With the proprietary software, you can show borrowers how their mortgage terms would change at different credit score levels. This puts the borrower in the driver’s seat, allowing him to decide if he wants to put in the work to improve his credit score or take the higher rates or less competitive terms to close the loan.

How Can Borrowers Shop Around for a Mortgage Without Hurting Their Score?

It’s no secret that every time a lender pulls an applicant’s credit, it hurts their credit score slightly. So, how are borrowers supposed to shop around to find the best rate?

The way to make it easiest on borrowers is to do a soft credit pull rather than a hard pull. Of course, you must do a hard pull before you clear a loan to close, but when borrowers are shopping around to see what they qualify for, a soft credit pull is enough.

With a soft credit pull, the borrower’s credit score isn’t affected, yet you get the same information with a hard pull. This means you can still pre-approve borrowers for the loan and not risk damaging their credit.

Why consider this?

There are a few great reasons.

You May Retain the Applicant

If you know your borrowers are shopping around, you want to do everything possible to keep them as your borrowers. A soft credit pull ensures their credit score doesn’t change, and you avoid trigger leads.

This means your borrower will receive fewer other lenders trying to get their business. You can do the hard credit pull when the applicant is ready to commit and move forward. At this point, you’ll have them in the middle of the underwriting process, and they’ll be much less likely to head elsewhere.

You Don’t Risk Losing the Approval

If a borrower has borderline credit and a credit pull knocks it below the loan’s guidelines, you could lose the borrower. Sticking with the soft credit pull as long as possible ensures their credit score doesn’t drop. If you know they are close to the limit, you can work with the borrower to increase their score slightly so that when you do the hard pull, it doesn’t damage their credit score.

You Can Give Borrowers Options

Lenders who can give borrowers options can set themselves apart from competitors. If you can tell your borrower what terms they can get with their current score and how the rates and terms

would change if their credit score increased, you help them make more informed financial decisions.

Since buying a house is one of the largest financial decisions borrowers will make, they will appreciate the option to improve their credit score and save money on their mortgage payments. This extra level of service can set you apart from the competition.

Getting Applicants Who Applied Elsewhere

If you have borrowers who applied elsewhere worried about hurting their credit score, the key is to grab them when they’re still within 14 days of the initial credit pull.

Most credit bureaus don’t count multiple inquiries for the same type of loan as long as it is within a short timeframe, usually 14 days. This means if a borrower applies for multiple mortgage loans within that time, it’s recognizable that the borrower is shopping around and won’t damage their credit scores.

Your job is finding applicants who applied elsewhere and are willing to shop around. You could take advantage of these trigger leads when borrowers apply elsewhere.

Final Thoughts

No matter your credit score, you want borrowers with good credit. While not all borrowers who apply for a loan with you will have great credit, you can leverage the power of CreditXpert to determine how best to help your borrowers.

The better a borrower’s credit, the lower their risk of default, but you can see your borrowers through their situation by helping them understand the changes they can make. If you’re grabbing borrowers who have applied with other lenders, consider a soft credit pull or ensure you’re pulling their credit within 14 days of the initial credit pull to avoid lowering their credit score further.