Dear myFICO,
We're working hard to get our finances in shape to buy a home, and we want to get the best interest rates possible. Which scores and credit reports will the lender check when we apply for a loan? Will they look at all of the 3 main credit bureaus? We'll also need a car in the next year. Do auto loans work the same way?
Audrey
Baltimore, Maryland
Dear Audrey,
When you apply for any kind of loan, the lender may look at your FICO® Scores and credit reports from all three credit bureaus. Let me explain.
In the U.S., there are three national credit bureaus (Equifax, Experian and TransUnion) that house credit histories on most of us. Each of these agencies uses the FICO® Score algorithm to produce a version of the FICO® Score based on the data they collect on each consumer. Lenders request these scores when evaluating consumer credit applications. Lenders determine which credit report and credit score they want to access on you. They can pull from any or all three of the bureaus. So it's smart to know your FICO® Scores from all three bureaus.
Another aspect to consider is that the FICO® Score algorithm is updated periodically to reflect more current lending trends and consumer behaviors. The FICO® Score that is most widely used by lenders is FICO® Score 8. This is the base FICO® Score primarily featured in myFICO products and most widely used by lenders. However, most mortgage lenders are using base FICO® Score versions previous to FICO® Score 8 (FICO Score 5 at Equifax, FICO Score 2 at Experian and FICO Score 4 at TransUnion).
Additionally, some lenders use industry-specific FICO® Score versions. These are scores similar to base FICO® Score versions but tailored for a specific type of credit such as an auto loan or credit card. For example, many auto lenders will use a FICO® Auto Score instead of a base FICO® Score when evaluating that type of credit request. (Learn more about other FICO® Score versions). These scores are also available to lenders at any of the three credit bureaus.
How do you know which credit bureau the lender is using?
Because lenders choose which bureau they pull from, it's important for you to periodically check your credit report and FICO® Scores based on data from all three credit bureaus to ensure the information reported on you is accurate, up to date and that the FICO® Scores based on each credit bureau's data are reflective of your credit risk. This will also help you understand the foundation of your credit.
When you are ready to apply for a loan, consider these general guidelines:
If you are thinking about getting a new car and will need financing, then the FICO® Auto Score is important as this industry-specific version is often used in the majority of auto financing related credit evaluations.
If you are applying for a new credit card, then the FICO Bankcard Score or FICO® Score 8 are important as these versions are being used by many credit card issuers.
If you are thinking of purchasing a home where you will need financing or refinancing an existing mortgage loan, then the FICO® Score versions previous to FICO® Score 8 (FICO Score 5 at Equifax, FICO Score 2 at Experian and FICO Score 4 at TransUnion) are important as these are the versions being used in the overwhelming majority of mortgage related credit evaluations
If you're seeking other types of credit such as a personal loan, student loan, retail credit or other types of credit, then focus on FICO® Score 8.
FAQs
Lenders request these scores when evaluating consumer credit applications. Lenders determine which credit report and credit score they want to access on you. They can pull from any or all three of the bureaus. So it's smart to know your FICO® Scores from all three bureaus.
What is more important, FICO or credit score? ›
While there are many types of credit scores, FICO Scores matter the most because the majority of lenders use these scores to decide whether to approve loan applicants and at what interest rates."
How much credit history do you need for a FICO Score? ›
What are the minimum requirements for a FICO® Score? In order to receive a valid FICO Score, the credit report must have: At least one account opened for six months or more, and. At least one account that has been reported to the credit bureau within the past six months, and.
Which 2 things make up the largest portion your FICO Score? ›
FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).
What is the most accurate way to check your FICO score? ›
3 steps to take to find your true FICO Score
- Step 1 – Check with your bank or credit union. The first step you can take towards finding your FICO Score is by checking with your bank or credit union. ...
- Step 2 – Contact your credit card issuer. ...
- Step 3 – Take out loans.
Good news: Credit scores aren't impacted by checking your own credit reports or credit scores. In fact, regularly checking your credit reports and credit scores is an important way to ensure your personal and account information is correct, and may help detect signs of potential identity theft.
What is a good FICO Score to buy a house? ›
Generally speaking, you'll likely need a score of at least 620 — what's classified as a “fair” rating — to qualify with most lenders. With a Federal Housing Administration (FHA) loan, though, you might be able to get approved with a score as low as 500.
Is Experian or FICO more accurate? ›
Simply put, there is no “more accurate” score when it comes down to receiving your score from the major credit bureaus.
What is an excellent FICO Score? ›
Can I buy a house with a 720 credit score? ›
Home loans
Assuming you have enough income, a 720 credit score is likely high enough to help you get a government-backed mortgage such as an FHA for VA loan. However, it's probably not high enough to get the lowest interest rates available.
While achieving a CIBIL Score of 900 is technically possible, it is extremely rare. Scores above 760 are considered very good or exceptional, providing significant benefits such as lower interest rates and higher chances of loan approval.
What is the minimum FICO score for a loan? ›
Payment history is weighed the most heavily in determining your credit score, along with your total outstanding debt. Generally, the required credit score for a personal loan is at least 580. To qualify for a lender's lowest interest rate, borrowers typically need a score of at least 800 and a high income.
What five things credit score experts want you to know? ›
The five biggest factors that affect your credit score are payment history, amounts owed, length of credit history, new credit, and types of credit. To improve your credit, it's important to understand how these factors impact your credit and what a credit score means when you apply for a loan.
Why is my credit score going down when I pay on time? ›
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.
What affects your FICO Score the most? ›
The most important factor of your FICO Score is your payment history, which makes up 35% of your score.
Is it good to have no FICO score? ›
Bad credit could even affect your ability to rent an apartment or qualify for a job. Having no credit exposes you to many of the same negative effects, but a person with no credit can often build a good credit score quickly with solid financial behaviors.
Is FICO your true credit score? ›
Is "credit score" the same as "FICO® score"? Basically, "credit score" and "FICO score" are all referring to the same thing. A FICO score is a type of credit scoring model. While different reporting agencies may weigh factors slightly differently, they are all essentially measuring the same thing.
How often should you check your FICO score? ›
If you have a credit freeze in place, NerdWallet recommends checking a credit report from one of the three major credit bureaus once a quarter on a rotating basis. If you don't have a freeze or are planning to apply for new credit, we recommend a monthly check.
Does everyone have a FICO score? ›
Credit scores are calculated using the information from your credit report. But does everyone have a credit score? Not necessarily. If you have never opened any lines of credit or haven't actively used previously opened accounts for some time, you may not have a credit score.
