Do Mortgage Lenders Use FICO 9?

When applying for a mortgage, your credit scores play an important role in determining whether you’ll get approved and the loan terms you may receive. But with multiple scoring models available, you may wonder – do mortgage lenders use FICO 9?

The short answer is: Not yet, but they likely will in the future.

Let’s take a closer look at the credit scores mortgage lenders use, how that’s changing, and what it means for homebuyers

The Prominent Role of FICO Scores in Mortgage Lending

FICO scores have long been the standard credit scores used by mortgage lenders. FICO stands for Fair Isaac Corporation – the company that pioneered credit scoring for consumers starting in the 1980s.

FICO creates different credit score versions or models tailored for specific lending products such as mortgages auto loans and credit cards. For mortgages, lenders have traditionally relied on these FICO score versions

• FICO Score 2 – Experian/Fair Isaac Risk Model v2
• FICO Score 4 – TransUnion FICO Risk Score 04
• FICO Score 5 – Equifax Beacon 5

Lenders get these scores by pulling a “tri-merge” credit report that contains your credit reports and scores from all three major credit bureaus – Experian, TransUnion and Equifax. They tend to look at your middle score of the three FICO versions.

So in short, FICO 2, 4 and 5 have been the go-to credit scores for mortgage lending decisions.

New Credit Scoring Models Are Coming

In October 2022, a pivotal announcement was made by the Federal Housing Finance Agency (FHFA) – the regulator of Fannie Mae and Freddie Mac.

The FHFA named FICO 10 T and VantageScore 4.0 as the new credit scoring models to be used for most mortgages. This change will be implemented in phases starting in late 2025.

Once the transition takes place, lenders selling loans to Fannie Mae or Freddie Mac will be required to provide these newer credit scores, rather than relying solely on classic FICO versions.

What’s Different About the New Scoring Models?

Both FICO 10 T and VantageScore 4.0 represent more advanced credit scoring models over the traditional FICO versions used for mortgages. Here are some key advantages:

• They incorporate trended credit data, analyzing how your credit profile and balances change over time rather than just a snapshot. This gives lenders greater insight into your credit management habits.

• More consumers can be scored, including those with limited credit histories. About 33 million more people will have scorable credit with VantageScore 4.0.

• Factors like rental payments and utility bill payments may be considered. This allows creditworthiness to be assessed even without credit accounts.

• Certain types of collections, like medical debt, are discounted in their impact on scores.

• Consumers who may have poor scores under old models could see improved scores with FICO 10 T or VantageScore 4.0.

When Will Mortgage Lenders Adopt the New Credit Scores?

Originally, the transition timeline set forth by the FHFA required lenders to begin using FICO 10 T and VantageScore 4.0 for most mortgages by Q4 2025. However, implementation was postponed to an unspecified future date.

The delay allows lenders more time to prepare their systems and operations for a scoring model change. Such an overhaul requires extensive updates to comply with the new guidelines.

In the meantime, lenders are still reliant on classic FICO scores when selling loans to Fannie Mae and Freddie Mac.

For mortgages lenders keep in their own portfolios, though, they aren’t bound by the FHFA requirements. Some lenders may already be testing or using FICO 10 T and VantageScore 4.0.

So in the near term, FICO 2, 4 and 5 will continue to dominate mortgage lending decisions. But longer term, adoption of the newer models will ramp up.

How FICO 9 Fits into the Picture

FICO 9 is another relatively new scoring model launched in 2014. However, it wasn’t designed specifically for mortgages, as FICO 10 T was.

FICO 9 introduced some modernized aspects like:

• Disregarding paid collections and small medical collections
• Considering rental payment history

But otherwise, FICO 9 uses a similar methodology to previous FICO versions. And it pre-dates FICO 10 T, which benefits from even more current data and techniques.

For these reasons, FICO 9 never gained significant adoption among mortgage lenders. The models mandated by the GSEs have remained the standard.

Once the industry transitions to FICO 10 T and VantageScore 4.0, it’s likely FICO 9 will fade into obscurity for mortgage lending purposes.

Why Your Credit Scores Matter for Mortgage Rates

While it may seem technical, the credit scores used by lenders can impact your mortgage eligibility and terms in important ways.

In general, the higher your credit scores, the better. This allows you to:

• Get approved more easily
• Qualify for lower interest rates on your mortgage, potentially saving thousands over its lifespan
• Access more favorable loan options, like reduced mortgage insurance requirements

Each mortgage program – whether conventional loans, FHA, VA, or USDA – has minimum credit score requirements mortgage lenders adhere to. But meeting bare minimums may not get you the best offers.

So your goal is to work on maximizing your credit scores, regardless of scoring model, before applying for a mortgage.

Tips for Improving Your Credit Scores

While FICO 10 T and VantageScore 4.0 use some differing factors, many core aspects of credit scoring remain consistent across models. You can take steps to build your scores in anticipation of a mortgage application:

• Pay all bills on time – mortgage lenders will review your entire payment history, so stay current on all accounts.

• Keep credit card balances low – high balances hurt your credit utilization ratio, which is a key scoring factor.

• Avoid new credit applications – opening new accounts just before applying for a mortgage can lower your scores.

• Check for errors on your credit reports – mistakes can negatively impact your scores, so dispute any inaccurate information.

• Monitor your scores – check your FICO scores at myFICO.com to track progress.

Sticking to credit basics like making timely payments and keeping debt in check will prepare you for mortgage lending under both old and new scoring models.

The Takeaway

While FICO 2, 4 and 5 remain entrenched in mortgage lending for now, change is coming. Wide adoption of FICO 10 T and VantageScore 4.0 will modernize credit scoring practices to benefit both lenders and consumers.

In the meantime, consumers eager to get a mortgage can focus on building their scores through responsible credit behaviors. That way, you can be ready whether lenders pull your trusty old FICOs or the new kids on the block.

So do mortgage lenders use FICO 9? Not commonly – but with scoring models evolving, it pays to focus more on your scores than the versions themselves.