When it comes to applying for a loan, regardless of what it is for, a credit score and mortgage score are pretty necessary, as a lender checks these scores so that he can be sure of the reliability of a person when it comes to paying back on time.
- Credit scores are numerical ratings of an individual’s overall creditworthiness; mortgage scores are tailored to predict the mortgage default risk.
- Credit scores are calculated using factors such as payment history, debt, and credit mix; mortgage scores consider similar factors but place more emphasis on mortgage-related history.
- Lenders use both credit and mortgage scores, but mortgage scores play a more significant role in mortgage loan approvals and interest rates.
Credit Score vs Mortgage Score
The difference between credit and mortgage scores is that the former considers all financial factors regarding the person applying for multiple types of loans. The latter can only be used when applying for real estate (e.g., houses) loans.
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A credit score is based on one’s credit history and gives an account of various activities of the borrower. It also offers a sense of guarantee to the entity providing the loan, whether the person will repay the loan in time.
A mortgage score is used to give the lender or entity a look into factors that help decide eligibility for a good or bad mortgage. It could be used when one is trying to purchase a property or real estate.
|Parameters of Comparison||Credit score||Mortgage score|
|Meaning||The credit score determines an individual’s reliability when acquiring loans. It is a superset of all scores.||The mortgage score is used to determine the reliability of purchasing a house using the property ownership records of a person.|
|Used for||You can use a credit score to apply for various types of loans, such as for vehicles, property, education etc.||You can only specifically use a mortgage credit score to apply for loans regarding real estate or property.|
|Scoring system||Credit scores are primarily on the FICO scoring system to determine the credit score.||Mortgage scores are commonly calculated using VantageScore, lying between 501 – 990.|
|Factors to calculate||The factors are – Payment history, the total amount owed, types of credit, the amount owed, or previous debts owed.||Factors are – credit utilization, depth of credit, property history, and recent credit.|
|Credit report||The type of credit report used depends on the type of loan being applied.||We usually see the use of a Residential mortgage credit report (RMCR) to determine the score.|
What is Credit Score?
Initially, lenders and banks who provided loans to people for various types of purchases and requirements had no way of obtaining any guarantee that the loans would be paid in time, or at all for that matter.
A credit score helps determine if an individual can apply for a loan and also determines the type of loan (the kind of interest) the person is eligible for.
The credit score is calculated by keeping in mind various factors, the most common of which are –
- Payment history
- The total amount owed
- Types of credit
- The amount owed
- Previous debts owed
These factors are all taken into account, and with the help of an organization called FICO (Fair Isaac Corporation), the credit score is calculated. The number lies typically within the range of 300 – 850.
The higher the FICO credit score, the higher the chances of the borrower receiving a loan of lesser interest, and it also provides a reliability factor to the lender. The score rating is as follows-
- Fair: 580 to 669
- Poor: 300 to 579
- Right: 670 to 739
- Excellent: 800 to 850
- Very Good: 740 to 799
To receive a loan, lenders look at a credit report containing the complete list of the individual’s financial accounts used to calculate the score. The credit report varies with the type of thing the individual wishes to purchase.
What is Mortgage Score?
Several loans were requested from the banks in early 1950, right after the introduction of the credit score, so that people could purchase a house or other properties easily. The number of requests was so high another sector or type of credit score was introduced, namely “mortgage score”.
The mortgage score can be used to apply for a loan to purchase any real estate or building, such as office spaces, houses, schools, etc.
The mortgage score determines an individual’s eligibility to apply for a loan and can be calculated with another scoring system called VantageScore. The credit scoring range for VantageScores lies between 501 – 900.
A few factors the VantageScore group takes into account are –
- Credit utilization
- Depth of credit
- Property History
- Recent credit.
In mortgage score, the Residential mortgage credit report (RMCR) is used to determine the score by the companies.
Main Differences Between Credit Scores and Mortgage Scores
- A credit score is a subset of all scores, while a mortgage score comes under a credit score.
- Credit scores can be used to apply for loans concerning any purchase, while mortgage loans can only be asked for the property and real estate.
- The credit system used to determine standard credit scores is done by FICO, while VantageScore is used to calculate mortgage scores.
- Factors for calculating credit score are payment history, the total amount owed, types of credit, and the amount owed. At the same time, mortgage scores are credit utilization, depth of credit, property history, and recent credit.
- For credit scores, the types of reports made differ from the kind of purchase the loan is being requested for, while for mortgage credit, it is a Residential mortgage credit report (RMCR)
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.