1650 E. River Road
Your Credit Score Determines Your Interest Rate
by contributing writer, Eric Painter, Senior Mortgage Consultant, Infinity Funding Corporation
In today’s market, it is becoming more important to have the highest credit score to get the best rate on your home loan. Within the last 90 days, all of the major mortgage companies and mortgage insurance companies have begun pricing loans based on credit scores. This is true for both conventional and FHA loans. In the past, if a home buyer received approval for a home loan, the loan would be priced the same regardless of whether their credit score was 620 or 700. Different mortgage companies have different “credit bands” for their credit score pricing, but the same holds true for all: the higher your credit score, the cheaper your rate. Over the last 12 years in this business, I have indeed seen that the higher a person’s credit score, the less the chance of that person missing a payment on a mortgage. It is not set in stone, of course, that a borrower with an 800 credit score will never miss a payment, but there is a much lower chance than a borrower with a 550 score. The credit score is a fairly accurate, though not guaranteed predictor of a person’s chance of missing payments on credit. However, I have seen plenty of good people with 550 credit scores make all their mortgage payments, and I have seen people with 800 credit scores miss mortgage payments.
There can be up to a 1/2% difference in the interest rate on a home loan due to lower credit scores. It is very important to work with a Loan Officer who has the knowledge, experience and ability to analyze a credit report to determine what can be done to help get a lower rate. I think credit management is the most important item that needs to be discussed when talking to a borrower about a home loan. You would be very surprised to see how a few simple things can take a credit score from 500 to 600+ and make the difference between a customer who is going to continue to rent or one who is going to be closing on a new home.