FICO Score Effect on a Mortgage
If you’re a little savvy about credit, you probably know that each of us is entitled to a free copy of our credit report, once a year, from each of the three main credit-reporting agencies. You can access these easily online at annualcreditreport.com — and if you’re willing to pay a few dollars, you can get your credit score, as well.
That’s great, but according to our new national financial watchdog, the Consumer Financial Protection Bureau, credit scores vary widely, and the ones you’re given may be very different from the ones lenders and other businesses actually use.
Because your credit score is used for much more than just predicting how reliable a borrower you’ll be (potential employers and landlords check it, as do some utility companies, insurers, and even car-rental companies), a poor credit score can doom you to steep interest rates and even outright rejections. It can cost you tens of thousands of dollars, or more.
How much of a difference does it really make if you end up in one category versus another? Here’s some information, from the horse’s mouth — the FICO website offers a handy calculator that lists the different typical interest rates offered to different FICO Score categories.
Below are national average interest rates for someone seeking to borrow $150,000 for a 30-year, fixed-rate mortgage.
- FICO Score of 760-850: 2.889%
- FICO Score of 700-759: 3.111%
- FICO Score of 680-699: 3.288%
- FICO Score of 660-679: 3.502%
- FICO Score of 640-659: 3.932%
- FICO Score of 620-639: 4.478%
When it comes to interest rates on long-term loans, seemingly small differences on some bad credit mistakes can add up to big money. For example, the best category above results in a monthly payment of $623, while the worst category demands $758. That’s a difference of $1,620 per year.
But look at the lifetime interest paid on the two loans and the dollars really add up. The best category leaves you paying a total of $74,446 in interest, while the worst category will eat up $122,905 in interest — a difference of $49,459. Even the difference between the best category and the next-best one will cost more than $6,000 in total interest paid.