The Difference Between A 740 & 680 Credit Score

The Difference Between A 740 & 680 Credit Score | Jim Catralano

Who would have thought that interest rates would remain at or below four percent since early 2013? In spite of the historic lows in mortgage interest rates, there have been many mortgage borrowers who have not been able to secure a mortgage interest rate below 4 percent.

Conventional loans backed by Fannie Mae and Freddie Mac provide access to the best available mortgage rates. However, securing these low rates are directly linked to the borrower’s credit score.

The higher your credit score, the lower your mortgage rate.

Shopping for a mortgage rate can be frustrating, and it doesn’t take long to see the disparity in rates from one lender to another. The reason — the lowest rate lender, is using best case scenarios with regards to credit score and other factors such as down payment or terms.

There is a difference between a 680 and a 740 FICO score

Let’s look at two home buyers each purchasing identical single-family residential homes for $350,000. Each home buyer plans to make a 20 percent down payment and make the home their primary residence.

There is one difference, though. One home buyer has a 680 FICO credit score and the second home buyer has a 740 credit score.

The 680 FICO Score Borrower

The home buyer with a 680 FICO score is quoted a mortgage interest rate of 4.25% with zero points. Though the rate is still low, it’s still higher than the best rates on the market.

The 740 FICO Score Borrower

The home buyer with the prime 740 FICO score is quoted a mortgage interest rate of 3.75% with zero points yielding a monthly principal plus interest payment of $1,334.

The difference

The 680 FICO score borrower with the higher interest rate will pay $83 more per month in payments than the 740 FICO score borrower.

When you look at that over a year that is $996, it’s not that bad. If you look at it over 30 years, that’s $29,880! That is quite a difference in payments for having slightly banged-up credit.

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