Get your credit in line BEFORE going for financing!

by Bruce McInnis Jr. (President/CEO CSA)

Question: I understand that the higher your credit score, the lower your interest rate. My question: Is there a standard scale for interest rates based on your credit score?

Answer: As it turns out, there's no universal standard. But, a lender determines what kind of risk premium it will add to a loan based on your credit history and the information in your loan application. You can't take a lender's advertised interest rate for its best qualified borrowers and tack on a set premium because you're a C credit instead of an A credit.

Credit scores and your rates

As one example, MyFico.com does show how mortgage rates vary by different credit score ranges. The site shows that the national average annual percentage rate, or APR, on a 30-year fixed-rate mortgage for a person with a FICO score between 760 and 850 is 3.77%. For a person with a credit score between 620 and 639, the national average APR is 5.36%. The difference in interest rates shows why it's so important to get your credit history on track before applying for a loan.

Credit histories and time

A credit score is determined by the information in your credit report. Most negative information, with the exception of a Chapter 7 bankruptcy filing, drops off your credit report after seven years. A Chapter 7 filing stays on your credit report for 10 years. Also, information about a lawsuit or an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. The only way to get them removed from your credit report is to challenge the credit bureaus under section 609, 610 and 611 of the FCRA.