Can a 10 Point Improvement in Your Score Significantly Lower Your Interest Rate?

Our clients often ask, "By how many points should I improve my credit score in order to get a better interest rate on my loan?" While there is no fixed answer to this question, in many cases, boosting your score by just 10 points can help in significantly lowering the amount of interest that you'd need to pay. Rates, terms and conditions vary from one lender to another; however, when it comes to credit scores, aiming for particular tiers can ensure that you secure the best available rates on mortgages, credit card or auto loans.

Mortgages

Freddie Mac and Fannie Mae are two government-sponsored enterprises that buy mortgages from lenders. These entities charge fees called loan-level pricing adjustments, or LLPAs. The amount of fees that you need to pay when getting a mortgage depends, to a large extent, on your credit score. The higher your credit score, the lesser is the amount of fees you'd have to pay. LLPAs change at 20-point credit score intervals, and all individuals whose credit scores fall within the same interval generally qualify for the same rates. Thus in such cases, boosting your score by just 10 points can take you to a better tier and provide access to a better rate. A score of 740 and above usually gets you the best rates. If you have a credit score less than 620, you probably won't be able to secure a mortgage in the first place, as Freddie Mac and Fannie Mae will not buy those loans. That said, keep in mind that other factors will also affect the amount of LLPA that you will be asked to pay, such as the kind of property you intend to buy, your down payment, the purpose of the loan (whether it is for purchasing a property or refinancing), as well as the duration for which you need the loan.

Credit Cards

Unlike the mortgage industry, there is no government-sponsored entity in the credit card industry; hence there is greater discrepancy among lenders when it comes to credit card underwriting. While some issuers specify a broad range of annual percentage rates (APRs) for which an applicant can qualify, others outline rate tiers. For example, a credit card company may establish APRs of 11.99%, 16.99% and 21.99% for borrowers whose scores fall within the intervals 740-850, 680-739 and 600-679 respectively. Thus if you carry a balance on your card and your score currently stands at 675, improving it by just 10 points may help you qualify for a much lower rate. This way, you can save hundreds of dollars in interest. However, before applying for a card, make sure that you comparison shop to get the best deal available.

Auto Loans

As far as auto-loans are concerned, lenders analyze a variety of factors before deciding upon the interest rate. These include down payment, income of the borrower, other collateral and the loan term. Moreover, a used car will most probably demand a higher interest rate compared to a new one, due to higher projected out-of-pocket expenses such as maintenance and out-of-warranty work. Nevertheless, depending on their credit scores, auto-lenders usually classify consumers into Super-Prime, Prime, Non-prime, Sub-Prime and Deep-Subprime categories. A consumer who falls into the Super-Prime category will usually have to pay less interest than an individual who constitutes the Prime category.

Business Loans

When it comes to business loans, your credit score again plays a significant role in determining the amount of interest that you'll be asked to pay. In fact, creatively using credit cards, there are certain banks and financial institutions which are willing to lend as much as $250,000 to borrowers who have good credit – and often at 0% interest! However, in order to receive this kind of financing, applicants have to meet certain requirements. In our 12-Month Fund&Grow Membership program, we tell you exactly how you can qualify for this kind of credit. We also do most of the work for you, so that you can obtain the funds easily, and concentrate on growing your business. Call us at (800) 996-0270 to learn more about how we can help you secure the financing you need, today.