How much of a difference does it really make if your credit score varies a few points?
Here’s some information, from the Fair Isaac Company (FICO).
Below are national average interest rates for someone seeking to borrow $150,000 for a 30-year, fixed-rate mortgage:
Tier 1: FICO score of 760-850: 2.889%
Tier 2: FICO score of 700-759: 3.111%
Tier 3: FICO score of 680-699: 3.288%
Tier 4: FICO score of 660-679: 3.502%
Tier 5: FICO score of 640-659: 3.932%
Tier 6: FICO score of 620-639: 4.478%
When it comes to interest rates on long-term loans, a low credit score can add up to a huge amount of interest paid. For example, a Tier 1 credit score results in a monthly payment of $623, while a tier 6 credit score results in a $758 monthly payment. That’s a difference of $1,620 per year, which doesn’t really seem that big, but look at the difference in interest paid through the lifetime of the loan, and the dollars really add up.
The tier 1 credit scores has you paying a total of $74,446 in interest, while the tier 6 credit scores will eat up $122,905 in interest;
A difference of $49,459.00
Even the difference between the tier 1 and tier 2 credit scores cost more than $6,000 in total interest paid.
But that’s not all, some small differences in credit scores can cut you off from a mortgage entirely. According to a CFPB (Consumer Financial Protection Bureau) report: “Fannie Mae generally won’t buy mortgages with FICO scores under 620. So, depending on your credit score, getting a mortgage may be out of the question no matter what interest rate you may be willing to pay.
What to Do
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