The FICO breakdownThe company behind the popular FICO scoring model published a "What If?" series for common, specific credit missteps.
Measure Changes To Your FICO
If you've ever wondered how your credit score would be affected by a missed payment or a maxed-out credit card, myFICO.com makes a look-up guide available to assess the probable damage.
Here's a few common financial difficulties and how they'll affect your credit scores, based on your "starting score".
Max-Out A Credit Card
Starting score of 780 : 25-45 point drop : possible score 725-745
Starting score of 680 : 10-30 point drop : possible score 650-670
30-Day Delinquency
Starting score of 780 : 90-110 point drop : possible score 670-690
Starting score of 680 : 60-80 point drop : possible score 600-620
Foreclosure
Starting score of 780 : 140-160 point drop : possible score 620-640
Starting score of 680 : 85-105 point drop : possible score 575-595
Not surprisingly, the higher your starting score, the more each given difficulty can drop your FICO. This is because credit scores are meant to predict the likelihood of a loan default. People with lower FICOs are already reflecting the effects of risky credit behavior.
Also worth noting that the above is just a guide -- your scores may fall by more -- or less -- depending on your individual credit profile. The number and type of credit accounts you hold, plus their respective payments and balances make up your complete credit history.
What Rate Will You Get For Your Credit Score?
Protecting your FICO matters. When your credit scores are high, you get access to better, lower mortgage rates than the next guy. And every 1/8 percent matters to your household budget.
What rate will you get with your credit score?
I couldn't find a current example, but i was able to find exactly the type of analogy for you to learn from. So, we need to start at the beginning with each of the three major credit bureaus, Equifax, Experian and TransUnion, collecting data from your lenders about your history of borrowing and paying back credit. They compile that information into your credit report, which any lender can access whenever you apply for a loan. The Fair Isaac Corp. is the major producer of credit scores. They take the information from those credit reports, apply their own trade-secret formula and, based on the three credit reports, distill three credit scores for you into one score ranging from 300 to 850.
Borrowers with high FICO scores -- the top tier ranges between 760 and 850 -- can expect lenders to offer them lower interest rates and more loan choices. Scores of 620 or lower usually place a borrower in the "subprime" (yes, THAT SUBPRIME) category, and they can expect to be quoted significantly higher interest rates and may be offered fewer varieties of loans. A FICO score of about 500-520 is generally the minimum that will qualify for a mortgage.
For example, here's what a borrower could have expected to be charged in interest for a $300,000 30-year fixed rate mortgage, based on his credit score, according to March 2007 interest rates:
How FICO score affects mortgage rates:
760 to 850 tier 5.780% 620-659 tier 7.096%
700-759 tier 6.002% 580-619 tier 8.583%
660-699 tier 6.286% 500-579 tier 9.494%
Please note that while the above stats come from a 2007 analysis, what will probably hold true is that a credit score of 500-579 could increase your rate by
as much as 2/3 of the rate you would possibly be able to secure with a score of 760-850.
So, run your credit and make sure that what is on the reports is accurate. You may find a delinquency that wasn't yours; you might find a balance showing for a credit card that you paid off (i will take about 30 days to come off); you may find that a car loan is still showing for a car you traded in or sold, etc.
I hope this helps provide a better understanding of what goes into your mortgage rates and how credit decisions can cost you money!
If you have any questions, please feel free to contact me Mark Slade at 917.797.5059
www.goodhomesforgoodpeople.com
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