ABC's of Borrowing

ABC's of Borrowing

When buying real estate, a lender will typically use the letters of the alphabet to rate borrowers. The letters rank the level of risk the lenders perceive:

"A"
signifies prime borrowers, those who always pay bills on time and whose debt-to-income ratio is within acceptable limits;

"B"
borrowers are those who have been 30 days late on a charge or mortgage payment within the past year;

"C"
denotes a riskier credit profile, with several 30-day or 60-day late payments; and

"D"
indicates serious credit problems such as a long-term delinquency or a bankruptcy in the past.

The level of risk determines the interest rate available to the home buyer. A home buyer with a B, C, or D rating could end up paying a significantly higher interest rate on a mortgage than someone with an A credit rating.