Dear James,
We all know that credit scores have a direct effect on mortgage rates (and a host of other big-ticket items that we'll get into as well...) But do your clients know that by improving their credit score from “fair” to “very good” can save them thousands of dollars over the lives of various loans? This was recently laid out in a study by LendingTree, and it is an eye-opener, so I thought I'd give you the highlights so you can pass along to clients as needed..
Here's the kicker of the study: analysis of interest paid over the course of a loan found that borrowers with very good credit (740-799) on average save $45,000 more than those with fair credit (580 to 669) “on a common array of debts.”
That common array means mortgages, student loans, auto loans, personal loans, and credit cards. According to the report, mortgage costs account for 63 percent of that $45,000 savings. That's a difference of about $29,000 between very good and fair credit scores.
The analysis set an average mortgage size of $234,437, an average car loan size of $21,778, an average personal loan of $11,258, an average credit card balance of $5,265, and an average student loan of $37,525. That's “$310,263 for a lifetime of common American debts,” the report stated; and the difference between final payout for fair compared to very good credit was just over $45,000.
Need more convincing? Based on minimum monthly payments, credit card borrowers with fair credit on average pay 248 percent more in interest than someone with good credit. On personal loans, that gap is 271 percent and on auto loans, it's 311 percent, according to the report.
“Even if you only have one of these loans, you’re still looking at significant savings with a very good credit score,” the report stated. A borrower with a very good credit score “would have a monthly mortgage payment that is $81 less than someone with a fair credit score.”
The ability to use that money to pay higher than the monthly minimum, the report noted, “would exponentially increase the value of those savings over that same 30-year period.”
Assuming the report's example of a $234,437 mortgage over 30 years at 5.5 percent APR, borrowers with very good credit would ultimately pay $41,600 for the loan. Borrowers with fair credit, on the other hand, would spend $460,700 by their final payment.
“Changes to your credit score can happen more quickly than we realize, with some people seeing substantial changes in a matter of weeks for things like paying down credit debt,” the report concluded. “Those who plan to take out a mortgage or loan should refrain from opening new credit accounts, as credit checks and young accounts can lower your rating.”
Of course, every situation is going to be different, so please feel free to contact me anytime you have a question as to what we can do to assist people with lower scores, as it is a fairly common issue. And for clients with higher scores, I am always happy to lay out which programs would serve them based on their unique situations. Of course, if you ever have any credit-related questions, please contact me personally anytime. I'm always here as you need and happy to help.
If you're currently working with a Noble Loan Officer, contact them today for more information on any of our programs. Otherwise, I am always available to discuss loan programs, co-branding, and other ways to add value to your business anytime.
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My Best Regards,
Brad Malkin, President
Noble Home Loans NMLS # 100539
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