Dear Dr. Don,
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?
-- Jamison Rates-Jump
There's not a standard scale. A lender determines what kind of risk premium it will put on 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.
That said, MyFico.com does show how mortgage rates vary by different credit score ranges. As I write this, 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 3.15 percent. For a person with a credit score between 620 and 639, the national average APR is 4.74 percent. The difference in interest rates shows why it's so important to get your credit history on track before applying for a loan.
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.
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