Karen Church, your "Go To" gal at RE/MAX Integrity at www.eugenehomesgal.com discusses the question of "How does a low credit score affect my interest rate?"
Lenders estimate the ability to pay back money based on a credit score. The rick factor they take on is built in to your interest rate as a financing fee. There for a low credit score results in a higher interest rate, higher monthly fees, and a higher amount of interest being paid over the total life of the loan.
A borrower with a credit score of 620 would be questionable to an underwriter. While the lender may agree to provide financing, the increased interest rate is factored into the monthly payment. The chart below illustrates the difference in the amount of interest paid over the life of the same loan with three different credit score scenarios:
30-Year Fixed Rate with a Principal Loan Amount of $250.000
FICO Score APR Monthly Payment Interest Paid
Above 720 4.9990% $1,341 $232,590
700-719 5.1115% $1,360 $239,485
675-699 5.653% $1,444 $269,683
620-674 6.680% $1,630 $336,913
Below 620 People with scores below 620 are not usually accepted for this type of loan any longer.
What this means is that a borrower who increases his or her credit score from 620-720+can potentially save $289 per month on mortgage payments, $3,468 a year, andapproximately $104,323 over the life of the 30 year loan.*
(Source: http://www.myfico.com/myfico/creditcentral/loanrates.asp and Credit http://www.creditresourcecorp.com )
Stay tuned for Part 5: How Does the Underwriter View My Score?
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