What is Good Credit anyway?

The definition of good credit has changed rapidly over the last 2 years. Ever since the "Mortgage Meltdown" (I hate that term), there has been a fast and furious tightening of underwriting guidelines. One of the major components of loan underwriting is a potential borrowers credit score, and what the credit report says about their past borrowing history.

Let's time travel back about 24 months, or 10 years in the mortgage years, when loans could be had by stating your income, or basically proving that you could fog a mirror. Back then Fannie Mae/Freddie Mac had allowances for credit scores down to a 580. Yes 580! You still had to receive an Approve/Eligible response form Fannie Mae/Freddie Mac, which was unlikely on that credit score. However 620 scores and up usually received the approval. That means a 620 score received the same rate as someone with an 800 credit score. NOT ANYMORE!

Fannie Mae/Freddie Mac have implemented loan level pricing adjustments (called LLPA's). These are nothing short of bumps to your interest rate depending on what your credit score is. In today's world, you need a 740 or above if you are looking at conventional loans to not get an LLPA attached to your loan. If you have a 700-739, the hit to your rate is not that bad, but some days may be as much as .125% on a 30 year note. Credit scores below a 700 get hit much harder. Expect about .25% higher of an interest rate than current market if your score is a 680-699, and as much as .375 if your score is 660-679. If you have score that low, you better have 20% down or you must go with an FHA loan. I'll talk more about that at a later time.

Just because you have a credit score in the range I just discussed, does not mean you can get approved. It is also important to look at what is on your report (i.e debt ratios, late pays, etc.).

If you are thinking about buying or selling and are not sure what your credit reports says, or are unsure about the credit score, call a mortgage professional today. Do not go the free credit report websites as they are not always the same as what a mortgage company will pull. Lenders eventually need their own credit report anyway, so you don't want to base a loan approval off of a credit report the lender did not obtain.