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January 2012
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Good Credit Equates to Low Interest Rates

Lenders Rewarding Borrowers with Low Mortgage Rates for Good Credit Scores

Most consumers in the digital age understand that credit scores play a significant role in mortgages, home loans and refinancing. Getting approved for the best home loan rate often is driven by the average of your three credit scores. Trans Union, Experian and Equifax are the three main credit repositories that best mortgage lenders use for underwriting home loans in the United States.

Mortgage Lenders Still Basing Loans on FICO Scores

It’s no secret that loan companies offer the best fixed mortgage rates to applicants that have high fico scores. The most common scores are based on models established by Minneapolis-based FICO, formerly known as Fair Isaac Corp., which are used to gauge a consumer’s financial health. The numbers, which range from 300 to 850, affect the ability to get mortgages and credit cards, as well as the rates borrowers pay for them. The score is used by 90 of the 100 largest U.S. financial institutions, according to FICO’s website.

About 18 % of 200 million consumers in the U.S. with credit scores, or 36 million Americans, had credit scores of 800 or higher in 2011, according to estimates from FICO. More than 75 million had scores of at least 750 while the median credit score last year was about 711, FICO said.

Good Credit Opens Up Doors

According to Freddie Mac the average 30-year mortgage rates that were tied to a fixed term came in at 3.89% this week.  According to the Federal Reserve the average interest rate charged on credit card balances was 12.8 % in the 4th quarter of 2011.

Maximize Your Financing Opportunities

A credit score of 760 or higher on a $300,000 fixed thirty-year home loan may qualify a borrower for a 3.625% rate or $1,368 monthly payment, compared with a 3.85 % rate and monthly payment of $1,406 for those with scores from 700 to 759, according to Having a credit score of at least 720 typically translates to the best mortgage rates available. In many cases, when a borrower has a credit score that exceeds 720 it enables lenders to be more aggressive with loan to value and debt to income ratios used to qualify home mortgage loans.