Credit Score and Mortgages

A credit score is a number that helps lenders predict the likelihood of a consumer’s ability to repay a loan.  Credit scores range from 300 to 850.  In the past, a credit score of 640 or higher meant “good” credit and (typically) approval.   Today… any credit score under 680 is (most likely) a denial.   It matters what your score is and you should know it… here’s why!

Ten years ago, lenders weren’t allowed to let consumers see their credit report.  Loan decisions were made and if the loan was denied, you got an address or phone number to contact one of the big credit report companies.  If approved, as long as your score was above 640… it didn’t matter, so lenders didn’t dwell on the score.   A 650 score or an 810 score literally was given the same treatment from mortgage underwriters.  Today, people know their credit score like they know their social security number (and rightfully so) and there are companies that update people monthly on what their score is, and what they should be doing to increase their score.

What used to be considered a “good” credit score has changed dramatically.   Today, a credit score of 740 (or more) is considered “good” and insures the “going” rate.   A 700-739 score usually receives a price hit that could add .125% or .25% to your interest rate.   A Credit Score of 681-699 could increase your rate .75% – 1.00%.   A 660 – 679 credit score would result in an increased rate of 1.5% or in most cases; denial.   This can be very costly to the consumer.   Example… if the standard rate is 5% on a 30 year fixed… a 695 score could cost the consumer .875% or make that 30 year fixed rate 5.875%.   On a $200,000 loan, that would mean a difference of $110 per month on their payment or an additional $7,000 over 5 years.  That’s real money! 

FHA is a good product for credit scores below 680… but even the FHA requires a Minimum score of 620.  With FHA, which is a great product for people with less than 10% down payment, the closing fees are approximately 1.75% more than conventional loans.

Next blog entry:  What Can You Do To Insure A Good Credit Score

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