3 Credit Scores You Need to Know When Refinancing
As our government grapples with trying to protect the economy from further financial damage, one result is lower interest rates for new and refinancing mortgage related lending. In fact, mortgage lending rates are near their lowest level in recent times. We're sharing which credit scores you need to know about if you're thinking about refinancing your loan.
Attractive mortgage lending rates are driving thousands of homeowners to try and refinance their mortgage loan to reduce their monthly payment amount. According to Fox Business, even a small 1% drop in your interest rate could result in a $173 reduction in a monthly mortgage payment1.
At the same time, getting approved for these lower rates can be challenging given lenders have tightened their lending criteria in response to evolving and uncertain economic conditions stemming from pandemic. If you are looking to refinance your mortgage loan, you'll want to be prepared to meet your lender's criteria and educate yourself about your FICO® Scores as they are the credit scores most commonly used in the mortgage refinancing process.
As there are different versions of the FICO Score, it's important that you focus on the FICO Score versions used in mortgage lending. It's highly likely that the following FICO Score versions will be pulled on all mortgage loan applicants and from all three credit bureaus:
- FICO Score 5 based on Equifax data
- FICO Score 2 based on Experian data
- FICO Score 4 based on TransUnion data
You can access the scores along with the top reasons why the scores are not higher at myFICO. Focusing your credit actions on these top reasons could help you to understand your scores and gain access to more attractive rates.
You can now focus on those mortgage-related versions in your FICO Score explanation report with confidence knowing they are the same versions your mortgage lender will likely access in the refinance loan review process.
1. Based on $300,000 mortgage loan with fixed interest rate of 4.5% and 30-yr term.
Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.