Credit Score Impact: Do Higher Scores Mean Higher Fees?
Are people with higher credit scores really paying more in fees than those with lower credit scores?
We’ve heard this question asked many times thanks to new regulations but it’s not entirely true.
Based on changes from the Federal Housing Finance Agency, the fees associated with different credit score ranges are changing. More specifically, the spreads of fee structures for loan-level price adjustments or LLPA’s are shrinking.
Meaning, higher credit score individuals will be receiving less of an advantage when it comes to loan pricing. In practice, here’s what that looks like - let’s take two scenarios and see the effects on each.
First, let’s start with someone with a credit score in the “fair” category or 640 to 659 range. Say they have a down payment of 5% going forward they will incur an LLPA of 1.5%. Prior to the change, the fee for this group of buyers was 2.75%. That means someone purchasing a $200,000 home would pay an LLPA fee of $3,000 under the new structure, down from $5,000 previously.
Now let’s look at a homebuyer with a credit score in the “very good” range or 740-759. Let’s say they put 20% down, going forward they will face a new LLPA of 1%, compared with 0.5% previously. For the purchase of a $200,000 home, that means the fee will double to $2,000.
So what this means is now people with higher credit scores are just not getting as good of a deal as they had been getting previously. However, they are still getting a better deal than individuals with lower credit scores, it’s just a little more equal now than it was before. Ultimately this move was to make it easier for lower-income individuals to own a home in part to compensate for higher interest rates and ballooning home prices. This is not as unfair as some news sources are making it out to seem on their headlines.
Ultimately, the higher your credit score the better deals you will still receive on all types of financing.
Whether it's houses, cars, or business loans - you're going to want to find a good way to build and sustain a high credit score. This will allow you to build great money habits and get the best deals when it comes to financing.
If you need help finding tips to build your credit score, reach out to us and we'd be glad to help!
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