Credit Score and Mortgage Qualification and Rate

The mortgage credit score that is most desired by a mortgage lender is any score that is above 700 points. This score, as measured by the Fair Isaac Corporation, is known as a FICO score. Having a high FICO score, based on a scale of 300 to 900, helps demonstrate a borrower’s creditworthiness to the lender and lower their interest rates and costs on a loan.

Prime Versus Sub-Prime Loans

Loans provided by banks and other lenders are classified as prime, conventional mortgage loans and sub-prime loans. Prime loans offer the best rates to borrowers. Sub-prime loans are several points higher than prime rates. A borrower with recent bankruptcies, unresolved derogatory lines of credit or delinquent payments will be unable to secure a prime rate and fall into the sub-prime category.

The classification of prime versus sub-prime is an ever changing FICO score. Market conditions and lenders determine the scores.  For example in the fall, a borrower may have a 660 FICO and be considered a prime borrower. Then, in the spring a struggling economy or lender may label that same score a sub-prime borrower. 

Consumer Credit Scores and FICO scores

Consumer credit scores are reported to 3 major credit reporting bureaus and available to consumers for free, by law. These reports are used by lenders to determine the appropriate loan interest rate and whether an individual may even qualify for a loan with a particular lending institution.

The FICO is a universal standard used by lenders to determine whether or not a borrower qualifies for a loan. This criterion is helpful as a first-look tool to help lenders weed through requests for mortgages. Understanding the FICO score and its effect on mortgage qualification is important for every person seeking to borrow money. It is difficult for a borrower with a poor or bad FICO score to access loans. Loans that are available to sub-prime borrowers are offered at rates that coincide with their FICO score.

A borrower with a FICO score of 700 to 740 should receive a lower rates than a borrower with a score between 600 and 640. The higher the borrower’s credit score, the better the chance to qualify for a lower costing mortgage.

Checking Your FICO Score

A borrower should periodically check their credit score in order to determine the accuracy of information that is being reported. Information that is obsolete or erroneous should be disputed and removed quickly because the scores take a while to acknowledge new changes.