May 08 2007
The Myth of Higher Credit Scores and Lower Interest Rates
Ok. Let me clear the air where interest rates and credit scores are mentioned in the same sentence. Usually new home or fist time home buyers ask me; “If they have excellent credit scores will the interest rate improve?”. Of course the opposite is “If my scores are lower than average, will my rate be higher?”
Interesting question. Let me explain. When professional mortgage brokers are listening to consumer requests for mortgage financing; we are gathering information to provide, hopefully, the best mortgage program options to consider.
Every mortgage program; whether it be, FNMA’s (Fannie Mae’s) FLEX-100, FLEX 80/20, My Community Mortgage, etc, has a specific set of interest rates available. It doesn’t matter if you have a middle credit score (most lenders use the middle of the three credit scores) of 640 or 810. The higher the credit score, the easier it will probably be to obtain a loan approval. But if someone has a lower score and gets approved on the same mortgage program; they should receive the same “approved” interest rate as someone with higher credit scores.
Remember, interest rates are mortgage program specific. If a banker or lender tells you your interest rate is higher because of your credit scores, it most likely is because they couldn’t obtain an approval with a conventional FNMA or FHLMC (Freddie Mac) type mortgage loan.  Please make sure you are asking your mortgage professional, why your interest rate is what it is. The answers are very specific. That is, if you are working with an upfront mortgage professional.
Stephen Thaggard