>780 to 850: low risk
>740 to 780: medium-low risk
>690 to 740: medium risk
>620 to 690: medium-high risk
>500 to 620 and below: high-risk
It takes as little as a one point difference in a credit score to almost double the interest charges a borrower pays over the life of a mortgage loan.
A borrower with a top-tier FICO score -- one between 720 and 850, can expect to receive a 6.243% interest rate on a $250,000, 30-year fixed-rate mortgage, according to myFico.com. The total interest paid over the life of the loan would amount to $303,736.
But if a score falls into the range of 675 to 699, the borrower might receive a rate of 6.905%, resulting in $31,970 more interest paid than if the credit score was at least 700, the site of the Fair Isaac division indicates.
The gap is of interest paid is largest when the FICO falls into the 620 to 674 tier, as an 8.055% interest rate over the life of the 30-year loan would amount to $413,842 -- a whopping $70,801 more in interest than it would cost the middle-score borrower with a FICO of at least 675.
When the borrower's FICO falls into the 500 to 559 tier, a 9.289% interest rate results in a $2,064 monthly payment with $492,953 interest paid over the life of the loan, which is about $49,000 more in interest than for borrower with a 560 FICO and a difference of $189,217 from the borrower with excellent credit, according to the site.
A first step loan prospects should do at least three months prior to applying for a mortgage is obtain a credit report from the three national credit reporting agencies, Equifax, TransUnion and Experian, to ensure their credit files are accurate, the National Mortgage Brokers Association recently said. Any inaccuracies and outdated information in the credit file should be modified by sending to the specific agency a written dispute and supportive documentation to request the item be reinvestigated and verified as to its accuracy.
Tips for Raising Your Score #1- Keep balances low on credit cards and other "revolving credit." High outstanding debt can affect a score.
- Pay off debt rather than moving it around. The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
- Don't close unused credit cards as a short-term strategy to raise your score.
- Don't open a number of new credit cards that you don't need, just to increase your available credit. This approach could backfire and actually lower your score.
- Do your rate shopping for a given loan within a focused period of time FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
- Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your score in the long term.
- Note that it's OK to request and check your own credit report. This won't affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.
- It's important to note that raising your score is a bit like losing weight: It takes time and there is no quick fix In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time. Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score.
- If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score.
- Be aware that paying off a collection account will not remove it from your credit report It will stay on your report for seven years.
- If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won't improve your score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.
- Apply for and open new credit accounts only as needed. Don't open accounts just to have a better credit mix - it probably won't raise your score.
- Have credit cards - but manage them responsibly In general, having credit cards and installment loans (and paying timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
- Note that closing an account doesn't make it go away. A closed account will still show up on your credit report, and may be considered by the score.
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