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Credit Score Averaging

Credit scores are very important in the mortgage industry. It is a factor in determining your interest rate. Most people have three scores from the credit agencies; Experian, Equifax, and Transunion. For people with limited credit, they would have one or two or even no scores.

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Most lenders will usually take the middle of the three scores. If there are two borrowers, then the lenders use the lowest of the two middle scores.

For example, there are two borrowers and their scores are as follows:

Borrower 1: 750, 701, 685

Borrower 2: 678, 643, 601

The middle score for borrower 1 would be 701 and the middle score for borrower 2 would be 643.

The lowest of the middle scores would be 643.

However, some lenders will take the average of the scores instead of the middle or the lowest of the middle scores. To take the average, you take add all the scores and then divide by the number of scores.

In the example above, the average score for borrower 1 would be 712 ((750+701+685)/3). For borrower 2, the average score is 640 ((678+643+601)/3).

The average of both scores is 676 ((712+640)/2). Another way is to sum up all the scores and then divide by 6.

The credit scores of 643 versus 676 isn’t that great but to the lender it makes a huge difference. It can be a matter of getting an excellent rate or a mediocre one.

The above was written over a decade ago.

(Feb 7, 2024) Here are insights into current practices and potential inaccuracies related to credit scoring in the mortgage application process as of 2023.

• Three Credit Bureaus: Experian, Equifax, and TransUnion are the three major credit reporting agencies in the United States. Mortgage lenders consider credit reports and scores from these agencies when evaluating loan applications.
• Use of Middle Score: The practice of lenders using the middle score of the three provided by the credit bureaus for a single borrower is standard in the mortgage industry.
• Lowest of the Middle Scores for Joint Borrowers: For applications involving two borrowers, lenders typically consider the lower of the two applicants' middle scores.
• Averaging Credit Scores: Averaging credit scores is less common in the mortgage lending industry. Most lenders prefer to use the middle score or the lowest middle score in the case of joint borrowers.
• Impact on Rates: The difference in credit scores can significantly affect the interest rate offered by lenders, with higher scores typically qualifying for lower interest rates.

Potential Outdated or Incorrect Information: The specific mention of averaging credit scores as a common practice could be misleading or outdated. While some lenders might consider the average score in certain underwriting decisions, this is not the standard approach.

For the most current practices regarding credit scoring in mortgage lending, it's advisable to consult directly with lenders or refer to official sources like the Consumer Financial Protection Bureau (CFPB) or mortgage industry publications.

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