How Does Credit Affect My Mortgage Rate?

Good Credit Equals Lower Mortgage Loan Rates.

Over the years, I am often asked whether or not credit impacts the interest rate one can obtain from a mortgage lender. I always give a resounding yes. In fact, good credit not only means that you "should" get lower rates on most types (mortgage, car, personal) of loans, but it also opens the barn doors to all types of credit possibilities.

Why exactly is this the case? Back in the day (we're talking the 1960s) the Fair Isaac Corporation developed a scoring system which lenders could rely upon to determine the probability of timely repayment of loans. Before this, lenders had not much more than a man's (or woman's) word, upon which to rely.

A few decades later, how things have changed. Credit scoring is a lender's first line of defense. Although loan decisions are not made soley on a consumer's credit score (in theory), it can definitely put a damper on a consumer's ability to borrow money, as well as the cost of borrowing money. FICO scores can range from 350 to 850, the higher the score, the better.
I have recent studies indicating that only 1 out of 1300 people in the U.S. have a credit score above 800, whereas 1 out of 8 prospective home buyers have a credit score between 500 to 600.

Take a look at the chart below which illustrates how credit score can affect the interest rate.

For more information, contact a qualified lender.