Subprime Credit Score Hurts Loan Rates

Added December 22, 2003 by Ilyce R. Glink

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Summary: If your credit score is just a few points below the prime cutoff, your rate shouldn't be that much lower than someone with grade A credit. Lenders say you could expect to pay an additional 1/4 to 1/2 percent in interest and perhaps another point or so in fees. If you can find ways to improve your credit score just a bit, you will save thousands of dollars over the life of your loan by being a Grade A borrower.

Q: What is considered a subprime credit score? And what kind of rates can I expect with say a 650 credit score?

A: Right now, you're on the border between a great rate (typically 650 to 680 and up) and a sub-prime loan. Some lenders will throw you a bone and give you A- status, and others will consider you sub-prime.

Since you're just a few points below the prime cutoff, your rate shouldn't be that much lower than someone with grade A credit. Lenders I know say you could expect to pay an additional 1/4 to 1/2 percent in interest and perhaps another point or so in fees.

One way to go might be with an FHA loan. FHA is used to borrowers with less than perfect credit, and outsized loan-to-value ratios.

You might also try a lender that keeps their mortgages in-house, as investments. This is also known as a portfolio lender.

Finally, consider pulling a copy of your credit history and credit score from myFICO.com. For $12.95, you'll get both items, plus a long list of specific things you can do that will raise your credit score. If you can wait six months to get your mortgage, you might want to do this, since you will save thousands of dollars over the life of your loan by being a Grade A borrower.

Published: Dec 22, 2003

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