What does a high FICO score really get you?

WASHINGTON — The higher your credit score, the lower the interest rate quote you’ll get on your mortgage, right? As a general proposition, sure. But how much of a rate benefit are you really likely to get with your super-high 800-plus FICO score compared with someone with a much lower score?

You might be surprised. A new review, conducted for this column by mortgage network Lending Tree — based on more than 1 million loan offers in 2018 — suggests that, depending on market conditions, a “good” 700 FICO score could get you nearly as attractive a rate deal as someone with an 800-plus score.

Lending Tree is an online platform that allows shoppers to obtain competing offers from multiple lenders, based on credit profiles, income, down payment and other factors. FICO scores assess applicant risk and run from 300 to 850.

As of last week, a score of 760 and above on a $300,000 fixed-rate 30-year loan would get an average quote of 4.14 percent. The same loan for a borrower with a subprime score of 620 would get a 5.73 percent average quote, a significant 1.6 percentage-point differential.

Lending Tree researchers found market conditions and competition also can affect the size of rate benefits to lower-FICO borrowers compared with highFICO borrowers. Lenders who want to increase their loan business may offer relatively more attractive rate deals to people whose scores are not pristine.

For example, borrowers making 5 percent down payments with subpar scores in the 670-679 range received offers on Lending Tree averaging 5.2 percent last year. Yet borrowers with super scores well above 800 making the same 5 percent down payment got offers averaging 4.78 percent, a differential of just 0.42 percentage points.

Lending Tree’s chief economist, Tendayi Kapfidze, told me this was likely the result of a challenging market for lenders in 2018 as demand for refinancings withered and home purchase applications became a prime focus. “More intensive competition” for that business opened the doors for lower rate quotes to borrowers whose credit profiles would normally have been charged more, he said.

Mortgage software giant Ellie Mae, in its latest study of rates, scores, down payments and other loan terms, found that in December of last year, fully two-thirds — 66.1 percent — of homebuyers insured by the Federal Housing Administration had FICO scores below 700. A remarkable 5.1 percent of these had deep subprime scores between 500 and 599, indicating exceptionally high risk of future default. At the other end of the scale, just 1.9 percent had FICO scores of 800 or above.

According to Ellie Mae’s December report, more than 1 percent of conventional purchase-loan borrowers had deep subprime FICO scores between 500 and 599. More than one in six loans — 17.7 percent — had scores below 700.

In both FHA and conventional loans, borrowers with low scores may have had “mitigating factors” in their applications that reduced risk, such as high bank reserves or exceptional employment stability.

Bottom line here: Your FICO score is not necessarily your mortgage destiny. Shop the market aggressively, and you’re likely to find a wider range of rates available to you than you imagined.