Credit Scores - Why should you care?

The FICO scoring system was created in the 1950s by Fair Isaac Corporation and has been the standard for lenders since the 1980s. FICO credit scores typically range between a low score of 300 and a high score of 850. Under the FICO system, securing credit becomes less expensive for borrowers with higher scores (those who represent the least risk) and more expensive for borrowers with lower scores (those who represent the most risk). In fact, when it comes to a mortgage, a lower credit score could easily cost a consumer hundreds or even thousands of dollars more in interest every month and throughout the life of the loan, compared to the same loan with a higher score.

For example, using a 30 year fixed-rate mortgage at $300,000 a person with a credit score between 720-850 could expect an APR of around 5.038% and a mortgage payment around $1677/month. Using the same criteria, a person with a credit rating between 620-674 could be looking at an APR around 6.850% and a monthly payment at $1966/month. Generally, scores below 620 are not considered for this type of loan.
Source: Myfico.com (30 year fixed-rate mortgage on $300,000) as of March 11, 2009.

This clearly reveals the relationship between higher FICO scores and lower interest rates and monthly mortgage payments. Of course, interest rates are determined by many factors but the bottom line is that individuals with low credit scores will pay nearly three times more in interest than those with strong credit scores.

Are you or someone you know considering buying or selling? Contact the Grove Team, (817) 337-0000. We are available to assist you with each step of the process.

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