NORWALK, Conn.--(BUSINESS WIRE)--Please replace the release with the following corrected version due to multiple revisions.
The corrected release reads:
DESPITE ELIMINATION OF A 620 CREDIT SCORE REQUIREMENT FOR HOME REFINANCES, A LOW CREDIT SCORE CAN STILL COST YOU A MORTGAGE
FreeScore.com shows actions, like increasing a credit card balance, can lower scores up to 62 points
While Freddie Mac eliminated the minimum credit score requirement for borrowers seeking a mortgage refinance from their existing servicer, as long as they have at least 20% equity in their home, scores below the mid-600s may still have difficulty obtaining a loan. The change went into effect for any refinances with a settlement date on or after Jan. 5. Previously, Freddie required at least a 620 credit score before allowing such a high-equity refinance to take place.
Freddie Mac reveals on its site that credit scores are still important in obtaining loans even as rates are below 4% on a 30-year fixed mortgage.
According to Freddie Mac, a general guide to interpreting your score:
- Credit scores ranging from 770 to 850 are considered very good, and the best credit rates are usually available to borrowers within this range.
- Credit scores above 700 are considered good, and most borrowers' credit scores are within this range. The median credit score is about 725.
- Credit scores below the mid-600s may have difficulty obtaining a loan, and will experience higher interest rates and/ or larger down payments.
So, while FreddieMac has eliminated a basement score, you can still be rejected for a loan.
According to Carrie Coghill, director of consumer education for FreeScore.com, a leading online consumer credit service providing affordable, unlimited access to all three credit scores, “Despite the announcement by Freddie Mac, you can still be refused for a mortgage. So, homeowners should monitor their credit scores and be aware that actions like opening too many credit cards, or increasing a credit card balance, can negatively impact your scores. And, of course, missing and late payments can also affect scores. It is something to be aware of – Freddie Mac’s announcement does not mean that you automatically get a mortgage,” she advised.
In fact, according to simulations of credit score changes among adults 18+ conducted by FreeScore.com, opening a new credit card account with a $2,500 limit could knock a credit score down by as much as 52 points.
Further results show increasing a credit card balance by $2,000 can lower credit scores by as much as 68 points. And, based on recently published mortgage rates associated with credit scores, the effect of a 40-point drop could be paying $9,057 more on a $200,000 30-year fixed mortgage.
FreeScore.com based its findings on FreeScore.com members who conducted 78 simulations on the FreeScore.com Credit Score Predictor. The results are:
|
Action |
Range of credit score changes |
|
| Open new credit card with $2,500 limit | -52 to +14 points | |
| Increase balance $2,000 on existing card | -68 points to +16 points | |
| Add 1 credit inquiry, plus getting 1 new credit card $2,000 limit | -55 points to +14 points | |
Coghill noted, “While most understand that overextending your credit can lower credit scores, having too little credit can also lower your scores. Not enough credit lowers your credit scores because the credit bureaus do not have enough of your credit history to determine your ability to pay.”
About FreeScore.com
FreeScore.com is the leading online consumer credit service, providing members with affordable, unlimited access to all three credit scores and their complete credit profile. For more information, go to FreeScore.com. FreeScore.com is a service of FYI Direct, Inc.