Do Lenders Use Credit Score or FICO Score for Mortgage Rate?

FICO is the most powerful credit scoring system in the U.S..

The FICO score is a number formulated from your credit history that determines your credit risk. Mortgage lenders base loan approval and your interest rate on your FICO score. It is, therefore, the most important credit score for you to maintain.

Significance

MyFICO.com says the FICO score is "the factor used to determine your mortgage rates" and "90 percent of the largest banks use your FICO score for credit decisions." The higher the FICO score, the lower the interest rate you qualify for.

Types

Fannie Mae and Freddie Mac, the government-sponsored corporations that provide funds for the majority of America's mortgages, require lenders to use FICO scores to determine applicant loan approval. The Federal Housing Administration, the world's largest government insurer of mortgages, also relies on FICO scores to manage risk.

Considerations

Fannie Mae, Freddie Mac, FHA and other lenders not associated with these entities, allow certain flexibilities for credit scores generated from sources other than FICO. Also known as "alternative" or "non-traditional" credit, the score is based on payments made to verifiable creditors, such as cell phone companies, utilities and landlords that can vouch for the consumer's history of paying obligations. Lenders base their interest rate on this form of credit.

References

• myFICO
• Realtor: Frequently Asked Questions: FICO Scores
• Experian: Understanding Credit Scores