I often remind readers that credit scores can impact interest rates by as much as 1%.
In other words, a borrower with a 780 credit score can get an interest rate that is as much as 1% lower than a borrower with a 640 score, assuming all other factors are similar.
This is why we always offer free* credit repair to borrowers whenever we see the potential for obvious “fixes” on a credit report.
To be clear, increasing a score by 140 points is a big reach, but we do often increase scores by as much as 60 points – and that can still result in a rate that is as much as 1/2% lower.
We use credit repair software to run “what if” scenarios, and then advise borrowers on what to pay off or how to shift balances.
Borrowers don’t usually have to pay off entire balances either, but instead need to simply pay them down to optimal levels.
*Note: We offer “free” credit repair for conforming loans only
Smaller Down Payments
It often makes sense for borrowers to make smaller down payments, if they are not already making a minimal payment, in order to pay down consumer debt in any case.
So, we just tell them how to do so in an optimal manner. And even if borrowers are already making a minimum down payment and have minimal cash, there are often numerous low-cost tweaks borrowers can make to improve their credit scores.
First-Time Homebuyers Don’t Need Credit Repair
As a quick reminder, first-time homebuyers don’t need to worry about improving their scores because Fannie Mae and Freddie Mac waive the “Loan Level Price Adjustments” (hits to rate for credit scores) for first-time homebuyers.
So, a first-timer with a 640 score gets the same rate as a first-timer with a 780 score.
Only For Borrowers In Contract
We only offer this free credit repair service once borrowers are in contract though.
We used to offer the service during the pre-approval stage – only to see borrowers leave us for another lender after we spent $600 repairing their credit.
We were of course totally OK with that as long as the borrowers sent us a nice thank you card… or not. 😊
Actually, losing borrowers after we spent money repairing their credit was both expensive and painful, so we had to shift our practice to borrowers in contract only.
Longer Closing Periods (Time To Run “Rapid Re-Scores”)
There are no 12-day closes in “credit-repair-land.” This is because we need time to generate “credit supplements” after borrowers pay down their balances – in order to generate updated scores (through what is called a “rapid re-score”).
This process can require several iterations and take as long as a week or more – so at least 7 calendar days should be added to the desired closing period. It is also what costs so much, as every credit account that is paid down requires a separate supplement for every credit bureau.
So, with three credit bureaus and multiple credit accounts to be paid down, there can sometimes be as many as ten supplements that need to be run.
Jumbo And Non-QM Too
Most of the info above relates to conforming (Fannie Mae and Freddie Mac) loans, as those loans are the most credit score-sensitive.
But, the non-QM and Jumbo worlds are also credit-sensitive. Many jumbo lenders have hard cutoffs in fact at either the 680 or the 720 levels.
The biggest takeaway though from this blog is: Borrowers with credit scores under 740 should always inquire about free credit repair, as it can lower their rate substantially.
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