Survey Shows Big Gap in Credit Scores

By:: Kirk Haverkamp | September 28, 2010

There’s a big gap among Americans when it comes to credit worthiness and the ability to obtain mortgages and other consumer loans.

Nearly one-half of adult Americans have the kind of credit that puts them in a good position to qualify for a mortgage and get the best interest rates and widest choice of loans, according to a new report from real estate data company Zillow. At the same time, nearly one-third have scores so low they are unlikely to be able to obtain or refinance a mortgage even with stable finances and a sizeable down payment.

The study, bases on an analysis of 25,000 loan requests received by Zilllow, found that 47 percent of Americans have FICO credit scores of 720 and above, considered the cutoff for “good credit.” People in this category can get the lowest available interest rates when applying for a mortgage and are regarded favorably by lenders

At the same time, 29 percent were found to have credit scores of 620 or below, meaning they would be unlikely to qualify for a mortgage even with stable finances and a sizeable down payment.

Those in the middle – the approximately one-fifth remaining – have scores between those two figures. The borrowers face an ever-increasing cost of borrowing for every 20 points they score declines, according to Zillow.

Each 20 point increase in credit scores, on average, resulted in a 12 percent decline in the interest rate a borrower would have to pay on a mortgage. Those with the best scores of 720 and above were averaging mortgage interest rates as low as 4.30 percent, whereas those with the lowest scores still able to qualify paid rates averaging around 4.90 percent.

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