A good credit score has always been important, but today it’s more valuable than ever. In the past, if you were getting a mainstream conforming conventional mortgage (not sub-prime), the structure was such that you were either approved or declined. If you just barely passed the credit standards, you paid the same interest rate as someone who passed with a wide margin. That is not the case today.
A higher credit score is also required in order for your mortgage to be approved today than was required in the past. Additionally, recent announcements by Fannie Mae, (the largest outlet for securitized conventional mortgages) also warn that standards will soon get tougher. The approved/declined threshold will be raised, and surcharges may increase depending on your credit score.
Let me try to put the total credit score range in context. There is more than one scoring system, but for the mortgage scoring system, credit scores are between 300 and 850. You can’t “mess up” bad enough to get 300 and you can’t be “perfect” enough to get 850. I have heard several opinions regarding the median credit score, but all have indicated that a median score is in the 680 to 700 range.
Several years ago, your credit score had to be below 620 before you were penalized. If your score was higher than 620, there were typically no extra mortgage fees or higher interest rates charges.
The mainstream safe number today is 740. If your score is under 740, you may not have to pay more, but the potential is there. These are the main factors that may trigger an extra cost if your score is under 740:
- The size of your downpayment
- Your choice of a Fixed Rate or Adjustable Rate Mortgage
- Conventional, FHA or VA financing
- Purchase or refinance transaction
A big part of a Loan Officer’s job today is to help you through the maze of mortgage programs, rules, penalties and rewards, so you end up with the best value for your particular circumstances. Working with me, and a company like Summit Mortgage, offers you the advantage of access to a large number of funding sources, not just the narrow range offered by some banks.
One of my goals today is to match homebuyers up with the program that best fits their particular circumstances, whatever they may be. I take a broad look at your particular preferences, goals and credit score, before making a recommendation.
If you have a low credit score today, you can’t change the past. However, you can increase your score by:
- Paying all of your bills on time
- Not overusing credit
- Keeping your credit card balances under 30% of the credit card limit
For more information about credit and credit score repair, contact me or visit the Resource Library on my web site.
Lou Auger, Summit Mortgage – Email – Website