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On Credit Scores And Mortgages

By Sally Maison
Published: Thursday, February 18th, 2010

For consumers looking to buy themselves a home, getting a mortgage is usually the quickest and most convenient way to do it. However, with the economy the way it is at the moment, a lot hangs on how good a credit score the consumer has when he or she is applying for a mortgage.

On Credit Scores And MortgagesCredit scores, the most popular of which are the FICO credit scores, are a measure of how good of a borrower a consumer is. The score itself is basically a three digit number which is specially calculated by credit scoring companies such as Fair Isaac Corporation – the makers of FICO scores – from the credit reports of consumers. The higher a credit score a consumer has, the better chances for him or her to secure a mortgage and to get good mortgage terms. Lower scores may mean much more expensive mortgage terms or having the mortgage application disapproved altogether.

So what credit score does a consumer need to be able to buy a home? Generally, the threshold between a good and a bad credit score is 620. Consumers with credit scores below 620 will have a hard time getting a mortgage. Consumers with FICO scores lower than 620 are considered to be sub-prime borrowers. This did not use to be a problem in the past when a number of mortgage companies actually specialized in accepting sub-prime mortgages. However, ever since the economic crisis happened, sub-prime lenders have virtually disappeared making sub-prime loans rare if not impossible to get.

Consumers whose credit scores fall between 620 to 650 are considered to be fair to good borrowers. Mortgage applicants who fall within this range have a good chance to qualify for a mortgage loan. However, it is unlikely that they will get good loan terms such as the lowest interest rates the mortgage company is offering.

For consumers to be eligible for the best – meaning the lowest – interest rates, they would have to have a score of around 760 or higher. In the past, it used to be that a score of 720 would easily get a consumer the best mortgage interest rates. The increased credit score requirement is primarily due to lenders being more stingy with loans, an understandable stance considering the economic situation. As a consumer’s credit score goes lower and further away from 760, the interest rates they have to deal with gets progressively higher as well.

Maintaining a good credit score is the best way to secure a mortgage. This is no easy trick, however, what with the economy the way it is and the high unemployment rate. Aside from credit scores, consumers also have to consider that lenders will also be looking into other details before they approve mortgage loans such as the consumer’s current debt level and income.

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