If a client has bad credit, they could be looking at an additional $15,000 in extra costs over the life of a loan (based off of a 30-year mortgage and the average purchase loan amount of $236,697). According to a LendingTree report, a buyer can chalk this up to higher interest rates and larger fees.
With a credit score in the 620-639 range, lenders could slap a borrower with an APR of nearly 5.6%. That’s up nearly 1 percentage point over last year at this time (see chart).
To avoid paying more than they need to for a loan, suggest to clients that they do everything they can to boost their credit score before getting a mortgage.
Here are some suggestions from FICO:
Start paying bills on time
Even if you’re only a few days late, late payments and collections can put a serious dent in your credit-worthiness.
Reduce your outstanding debt
First, get your credit report, then make a plan, paying down the accounts with the highest interest rate while maintaining minimum payments on the other accounts in your name.
Stop creating outstanding debt
Obvious, right? But many people are tempted to open more credit accounts to increase their available credit. This can backfire in two ways. One, if you’re already struggling with debt, you’re probably going to be tempted to keep spending if you have the option. Don’t give yourself the chance. Two, this can actually backfire and lower your credit score.