The Associated Press today released a story by Eileen AJ Connelly regarding the relationship between credit scores and mortgage rates. The primary focus of the story was to explain how efforts to increase credit scores above 720 (FICO) may not yield a lower mortgage rate, no matter how high the score goes. On the flip side, the article goes on to show that scores under 620 are generally not eligible for a loan at any rate by most lenders.
The takeaway from the story is that if you have a score between 620 and 720, it is in your best interest to improve your score as much as possible to receive the best possible rate. If you are below 620, you must raise your score before you can realistically entertain thoughts of a purchase in today’s real estate market environment. If you are above 720, there is little to no benefit in improving your score.
In speaking with loan officers and underwriters here at Mission Mortgage, the article was verified to be almost entirely inline with the requirements used at this company when assessing potential borrowers for mortgage lending. It was noted that there is still a small benefit to raising one’s credit score to 740 (FICO), but after that, there is really no significant difference in interest rates available. Once you hit 740, your credit score will not impact your rate further, no matter how high you can make it rise. It was confirmed that Mission Mortgage will not issue loans for people with credit scores below 620, verifying what was described in the article.
Within that range between 620 and 740, there are incremental improvements in interest rates as the score inches up. An increase of just 20 points will most often allow for a lower mortgage rate, so people within that range should carefully check their credit reports when applying to see if any mistakes or corrections can be made to improve their overall FICO score. If you are considering a home purchase, it is in your best interest to speak with a lending professional to find out what you can do to earn the best rates available. A failure to do so could lead to paying more interest over the life of the loan.
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