How to Determine the Affect FICO Scores Have on Mortgage Interest Rates

Your FICO score is one of the most important numbers that you own. It is used by lenders to determine what interest rate you will be charged for personal loans, credit cards, car loans and home loans.

Difficulty: Moderate

Instructions

Steps for Determining If Your FICO Score Will Impact Your Interest Rate When Applying for a Mortgage

1. Log on to the Internet and access the website of one of the many credit monitoring companies that is available online. A few that offer free trial offers include Experian, MyFICO and Identity Guard.

2. Set up an account with one of the credit monitoring companies.

3. Access your FICO score following the direction given on the credit monitoring site.

4. Print out your FICO score.

5. Review your FICO score to determine which credit risk category you fit into. If your credit score is between 500 and 579 your mortgage interest rate will generally be about four points higher than the best interest rate for mortgages. If your FICO score is between 580 and 619 then your interest rate will improve slightly to about 2.25 points higher than the best interest rate for a mortgage. If your FICO score in between 620 and 659 then your mortgage interest rate will improve to only 1.5 points above the best mortgage interest rates. The next interest rate bracket contains FICO scores between 660 and 699. In this interest bracket you will pay an interest rate that is about .5 points above the best mortgage interest rate. If your FICO score is between 700 and 759 then your interest rate should only be about a quarter point higher than the best mortgage interest rate. Finally if your credit score is above 760 points then you will be able to finance your home at the best interest rate available.

Tips & Warnings

• Take advantage of free trial offers from credit monitoring companies online.
• To improve your FICO score pay off your most recent debt first.
• Older debt doesn't have as much impact on your FICO score as newer debt does.
• If you are self employed and trying to apply for a mortgage your FICO score will generally need to be at least 700 to qualify for a mortgage.
• If you are self employed your interest rates generally won't improve after the 700 point mark.
• Interest rates and policies vary by lender.
• Don't apply for new credit card accounts right before you want to apply for a mortgage as this will reduce your FICO score.
• Making late payments on your credit card accounts can also lower your FICO score.

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