Question

Lenders primarily use the Fair Isaac Corporation (FICO) model to determine credit scores. FICO grades consumers on a 300- to 850-point range; a higher score indicates less risk to the

lender. A score of 800 or higher is considered exceptional; 740 to 799 is very good; 670 to 739 is good; 580 to 669 is fair; and 579 or lower is poor.

According to MyFICO.com your credit score can impact interest rates available to you as follows:
FICO score	APR
760–850	4.17%
700–759	4.392%
680–699	4.569%
660–679	4.783%
640–659	5.213%
620–639	5.759%

1. Using the loan rate available to someone with a FICO credit score of 780, calculate the monthly payment and total paid over the life of a $250,000 30-year fixed-rate mortgage for someone with this credit score.

2. Now, calculate the monthly payment and total paid using the loan rate available to someone with a FICO credit score of 630.

3. Calculate the difference in monthly payment and the total interest paid for someone with a very good credit rating (780) with someone who has a low credit rating (630).

Answer 1

Hello

To determine the monthly payment, I have used the PMT function of Excel. The inputs for PMT function are - PV, Periods, Rate.

All the three sub-questions are solved in the snapshot below. To avoid repetition, some rows have been hidden.

With formulae -

Hope this helps.

Please provide your feedback!

Thank you!