Does FHA Check Equifax or TransUnion? A Complete Guide to FHA Credit Reporting

People who want to get an FHA mortgage loan often ask, “Does FHA check Equifax or TransUnion credit reports?” I actually wondered the same thing last year when I was going through the FHA loan process for the first time.

In this comprehensive guide, I’ll explain exactly how FHA credit reporting works, including details on whether they use Equifax, TransUnion, or both

How FHA Credit Reporting Works

It’s not true that the Federal Housing Administration (FHA) checks your credit report. Instead, they use lenders that are approved by the FHA to check your credit history and make sure you can pay the loan.

Here’s an overview of the FHA credit reporting process:

• You apply for an FHA loan through an approved lender. This can be a bank, credit union, or mortgage lender.

• The lender will then get copies of your credit report from Equifax, Experian, and TransUnion, the three main credit bureaus.

• They analyze your credit reports to look at factors like your payment history, amounts owed, credit utilization ratio, and any negative marks.

• Based on their analysis, they will determine your credit score and decide if you meet FHA’s minimum credit standards.

• The lender then submits your loan application and credit info to FHA, who will ultimately decide whether to approve the loan.

Do FHA Loans Use Equifax or TransUnion?

When it comes to deciding which credit bureau reports to look at, lenders have some flexibility. Some lenders may prefer using Equifax or TransUnion reports over the other bureaus.

Here are some factors that can determine which reports a lender focuses on:

• They may look at the credit bureau with the most information if you don’t have a lot of history.

• If your scores vary between bureaus, they may give more weight to the highest score.

• Specific lender policies may dictate which reports they emphasize.

However, FHA does require lenders to use the middle score when determining your creditworthiness – regardless of which bureau it comes from. This prevents you from being penalized if you have one disproportionately low score.

So in essence, while the lender reviews all three, their decision will be primarily based on the middle score from one of the three bureaus.

FHA Minimum Credit Score Requirements

In order to qualify for an FHA loan, you’ll need to meet some minimum credit standards:

• Minimum credit score of 580 – This is the bare minimum score needed for 3.5% down payment.

• 500-579 score – You can still qualify with this lower score, but will need at least a 10% down payment.

• Maximum debt-to-income ratio of 43% – Your total monthly debt payments can’t exceed 43% of your gross monthly income.

• 2-year history of making payments on time – FHA wants to see you can reliably pay debts on time.

Meeting these requirements ensures you have the creditworthiness to manage an FHA mortgage responsibly. If your score is below 580, you may need to improve your credit before applying.

Tips for Improving Your Credit for an FHA Loan

If your credit doesn’t meet FHA’s standards yet, here are some tips to improve it:

• Pay all bills on time – Payment history is a major factor in your scores. Set up autopay if needed.

• Pay down balances – Owing less credit utilization helps. Try paying more than the minimums.

• Become an authorized user – Ask a family member with good credit to add you as an authorized user.

• Dispute errors – Mistakes on your credit reports can drag down your score. Dispute any inaccuracies.

• Limit new applications – Each application causes a hard inquiry, which can temporarily drop your scores.

With some time and diligent credit management, you can boost your scores and become eligible for an FHA loan.

FHA Credit Reporting FAQs

Does FHA use FICO or VantageScore?

FHA instructs lenders to use traditional FICO scores, not VantageScore, when evaluating borrowers.

How far back does FHA check credit history?

FHA generally looks at your credit history for the past 2 years minimum to evaluate your reliability.

Can I get an FHA loan with no credit history?

It is possible to get an FHA loan with no prior credit history, but you will need a larger down payment, pristine employment history, and the lender may require non-traditional credit references.

What credit report disputes should I make before applying?

Focus on disputing late payments, collections accounts, and any other derogatory marks that are incorrect or outdated. Fixing errors can quickly boost your scores.

The Bottom Line

While FHA itself doesn’t pull your credit reports, they rely on approved lenders to thoroughly evaluate your creditworthiness using Equifax, TransUnion, and Experian reports.

The lender may focus more heavily on the middle score from one bureau when deciding to approve your loan application.

With a minimum 580 FICO score, low down payment, and clean recent credit history, you can qualify for an affordable FHA mortgage loan. Monitoring all three credit bureau reports and maintaining good credit habits is key to getting approved.