Mark Schulenburg

Branch Manager • Inlanta Mortgage

  • Home
  • About
    • About Mark
    • Privacy Policy
    • Licenses
  • Resources
    • First Time Home Buyer Tips
    • First Time Home Seller Tips
    • Home Appraisal
    • Home Inspection
    • Loan Checklist
    • Loan Process
    • Loan Programs
    • Mortgage Calculator
    • Mortgage FAQ
    • Mortgage Glossary
  • Testimonials
  • Apply Now
  • Contact

FICO Scores: How Does Your FICO Score Impact Your Mortgage? Let’s Take a Look

January 6, 2015 by Mark Schulenburg

FICO Scores

Most people have heard the term FICO score, but some remain confused as to what it actually is and if it affects them when they try to obtain a mortgage. A few questions can be answered to help people understand how it can affect the amount of interest you pay on your loan.

What is a FICO Score?

A FICO score is a credit grade of a borrower, based on credit history as reported to 3 separate credit reporting agencies. It is based on a number of factors, including the amount of credit a person has, payment history, late payments, judgments, loan defaults and other factors.

A mathematical formula developed by Fair Isaac Corporation (thus the term FICO) is used to grade the credit risk the borrower represents. Scores range from 350 to 850. A score of 650 or better is considered good and a score above 750 is considered very good.

Does a FICO Score Affect a Mortgage Rate?

Mortgage interest rates are calculated in part, on the amount of risk the borrower represents. The higher the risk the borrower presents, the higher the interest rate the lender must charge to account for the risk. With FICO scores, the lower the score means a higher risk, and thus, less favorable mortgage terms. Those with low FICO scores may have difficulty finding a mortgage.

How much the rate will change depends on the lender. Myfico.com estimates that with current rates, a borrower with an average FICO score can expect to be charged more than 1.5 percentage points more than a borrower with an excellent score. Though the difference in interest may not seem to be much, it will add up over time.

For example, a borrower seeks a $200,000 mortgage on a 30 year fixed rate. Because they have an excellent credit score, they obtain a mortgage at 3.549%. Monthly principal and interest payments at that rate amount to $904 per month. Total interest paid on the loan will be $125,285 over the 30 year period.

Another borrower seeking the same mortgage has a lower credit score, in the average range. The borrower is offered the same mortgage but at 5.138% interest. The monthly payment will be $1094 per month and the borrower will pay $192,607 in interest. The difference in this case, between an excellent FICO score and an average score is $187 per month, $67,302 over the life of the mortgage.

Is a FICO Score Permanent?

No. A credit score will change depending on the borrower’s credit history. A borrower with a lower score can increase it over time by taking certain steps to improve it. Obtaining their credit report is the first step to improvement. It should be reviewed for accuracy, and incorrect entries should be reported. Outstanding judgments, if any, should be paid. Paying down revolving credit card debt also can help.

Visiting an experienced mortgage professional to discuss his or her current FICO score is another good start. The mortgage professional can discuss the effect it has on your mortgage rates and how to improve your score and put a borrower on the path to obtaining the best mortgage rate possible.

Filed Under: Home Mortgage Tips Tagged With: Home Mortgage Tips, Mortgages, Mortgages and Credit

Mark Schulenburg

Contact Mark


Branch Manager
Call (630) 417-7174
marks@inlanta.com
NMLS # 559943
CLICK HERE
TO APPLY NOW →

NMLS #1016

Browse Articles by Category

Get A Free Rate Quote!

Recent Articles

  • Case-Shiller: Home Price Growth Slows in April
  • The Quick and Easy Guide to Understanding the Math Behind Your Mortgage Closing Costs
  • You Are A Serious Buyer: How To Show It
  • The Top Things To Know When Refinancing Your Home
An Illinois Residential Mortgage Licensee #MB.0006190 Inlanta Mortgage is regulated by the State of Illinois Department of Financial and Professional Regulation,
James R. Thompson Center
IDFPR-Residential Mortgage Banking
100 W. Randolph, 9th Floor
Chicago, Illinois, 60601
All Inquiries: 1-888-473-4858
TYY: 1-866-325-4949
Equal Housing Lender

Our Location


2805 Butterfield Road
Oak Brook, IL 60523

Copyright © 2022 · Powered by MySMARTblog