Does the Highest Credit Score Get a Better Rate Than a High Score?

May 3, 2004, Revised May 11, 2009, Reviewed February 4, 2011

"I am tired of seeing mortgage ads that say ‘perfect credit not required’. I have spent all my adult life exercising exceptional financial responsibility and now I have a credit score of 800 to show for it...I would like to know what sort of leverage this gives me in my hunt for a mortgage? Can I negotiate a better interest rate, reduce points or waive some fees? Please tell me that my diligence will yield some tangible benefits".

In 2004, I answered this question as follows:

Sorry to disappoint you, but in most cases the mortgage market does not reward exceptional credit scores. If your credit score is high enough to qualify you for the best prices available, having an even higher score does you no good.

Of course, having a score lower than that required for the best prices means you pay more. The ads that say "perfect credit not required" don’t say that those with imperfect credit will pay the same price that you pay, and in fact they will pay more.

Lenders want to advertise the lowest prices possible, so they base their posted prices on favorable assumptions. One of them is that the borrower has good credit. Some others are that the property is single-family, that it will be occupied as a permanent residence, that the borrower can document sufficient income to meet the payment obligation, and so on. Deals that don’t meet these specifications are priced higher.

Your credit score of 800 (out of a maximum of 850) exceeds the minimum required for the best prices. While the minimum varies from one program to another, 720 is widely used. Where that is the case, a borrower with 720 would pay the same price as you, but a borrower with 650 would pay more.

There is one situation, however, where having an exceptional credit score, as opposed to merely a good one, might pay off. Your transaction might not meet all the other specifications of a loan that commands the best pricing. For example, the ratio of housing expense to income might be well above conventional standards, or you might not be able to make a down payment, or document your income. In such cases, an 800 score could keep you in the best-price category, or close to it, where a 720 score would not.

In short, an exceptionally high credit score is a great thing to have if you lack one of the other requirements for the lowest possible price.

In 2009 and thereafter, the answer is different in one important respect. The FICO score needed to get the best possible price is no longer 720. It is at least 760, in some cases 780, and I have seen cases where it was 800. There is nothing like a financial crisis to raise the value of financial virtue.

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