What is a Good FICO Score and What Does it Mean?
Posted in Finance on 12/03/2010 03:34 pm by
Kyle Gentile asked:
You might ask yourself these questions. The general rule is the higher the FICO score the better and if it is high you could wind up saving lots of money. When lenders decide to give you a loan, your FICO score is used as an indication of risk. The lesser risk you are, the lower the interest rate you will have to pay. The lower the interest rate, the more money you will save over the life of a loan.
The FICO Score range is 300 to 850 and it is broken down as:
o 300 – 499 bad credit,
o 500 – 619 low credit,
o 620 – 679 average credit,
o 680 – 699 good credit,
o 700 – 850 excellent credit.
An example of how this will save you money is to look at a 30 year mortgage. With Person A having an excellent FICO score and Person B having an average score. When Person A applies for a $200,000 30 year mortgage they get a very nice interest rate around 6 % and a monthly payment around $1200. When Person B applies for the same loan, they get an interest rate around 7.5% and a monthly payment of $1400. The difference is $200 per month. This does seem like much, but it really is. Over the life of the loan, 360 months at $200 per month, it equals $72,000. That is a huge savings by Person A.
Furthermore, if Person B had any lower of a FICO score, they more than likely would not even get a loan. 620 is often used as a cut off point by lenders. This means if you are below that most institutions won’t touch you and you will have to borrow from a sub prime lender. The interest rates provided by this group of lenders is often much higher than even the average FICO score rate. You could pay in the double digits for interest, making the consequences of having a bad FICO score really costly.
You should always be looking to protect and increase your FICO score. From the example above, the $200 a month could really make a difference in a person’s life. This is especially true if the money is invested. The person saving that $200 a month also has fewer worries. They have the flexibility to deal with changes in the economy and inflation.
Ruben
You might ask yourself these questions. The general rule is the higher the FICO score the better and if it is high you could wind up saving lots of money. When lenders decide to give you a loan, your FICO score is used as an indication of risk. The lesser risk you are, the lower the interest rate you will have to pay. The lower the interest rate, the more money you will save over the life of a loan.
The FICO Score range is 300 to 850 and it is broken down as:
o 300 – 499 bad credit,
o 500 – 619 low credit,
o 620 – 679 average credit,
o 680 – 699 good credit,
o 700 – 850 excellent credit.
An example of how this will save you money is to look at a 30 year mortgage. With Person A having an excellent FICO score and Person B having an average score. When Person A applies for a $200,000 30 year mortgage they get a very nice interest rate around 6 % and a monthly payment around $1200. When Person B applies for the same loan, they get an interest rate around 7.5% and a monthly payment of $1400. The difference is $200 per month. This does seem like much, but it really is. Over the life of the loan, 360 months at $200 per month, it equals $72,000. That is a huge savings by Person A.
Furthermore, if Person B had any lower of a FICO score, they more than likely would not even get a loan. 620 is often used as a cut off point by lenders. This means if you are below that most institutions won’t touch you and you will have to borrow from a sub prime lender. The interest rates provided by this group of lenders is often much higher than even the average FICO score rate. You could pay in the double digits for interest, making the consequences of having a bad FICO score really costly.
You should always be looking to protect and increase your FICO score. From the example above, the $200 a month could really make a difference in a person’s life. This is especially true if the money is invested. The person saving that $200 a month also has fewer worries. They have the flexibility to deal with changes in the economy and inflation.
Ruben