Whether you’ve been planning on buying a house in the near future or not, you’ve probably heard that people with higher credit scores are now paying higher fees, and people with lower credit scores are paying lower fees when getting a mortgage.
Hearing that might make you feel one of two ways if you’re planning on buying a house:
- Yippee! I’m finally getting a fair chance. It’s not fair that people who don’t need lower rates and fees always get the better end of the stick, and now I have a chance at buying a home.
- Not fair! I’ve worked hard to improve and maintain a great credit score, and now I’m being penalized for it?! What was the point of caring? Does it even pay off to be careful with my finances?
Regardless of which group you’re in, those are both valid feelings and perspectives to have.
It’s an uphill battle when you have a low credit score because you’re just starting out, you’ve fallen on tough times, or just struggled financially. Everything seems to cost you more when you could use a break more than anyone.
Credit card payments are hard to keep up with because your interest rate is so high, you find yourself just paying the minimum amount per month. Your car loan probably has a higher interest rate. And if you want to buy a house, you’re probably going to pay a higher rate than people with a better credit score on the biggest and longest term loan you’ll take on in your life. So yeah, this probably sounds like great news to you.
On the other hand, it’s aggravating to hear that you’re now going to be charged more after being conscientious, careful, and working hard to maintain a high credit score. You might have even done some deliberate things to improve your credit, like take a course, hire a finance coach, or simply read some books on how to do it.
Most likely you haven’t missed any payments on your credit cards, car loans, rent, or mortgages. You’ve proven you’re responsible and less of a risk to a lender because you do what needs to be done to pay your bills in a timely manner. So nobody’s going to fault you for feeling like you’re not being rewarded for your efforts, but rather penalized for it.
Either way, it’s easy to start feeling like there’s no reason to worry about improving and maintaining your credit score.
There’s a lot of debate about this new fee structure, but regardless of whether you’re in favor of the rule or not, there’s not much you can do to change it. So before you decide to just let your credit score slide, or not make efforts to improve or maintain it, consider these four reasons why you should still try to have the highest credit score possible:
- Lower credit scores still affect your fees and interest rates pretty much everywhere else. Lower fees for lower credit scores only apply to mortgage loans being sold to Fannie Mae or Freddie Mac. A lot of them are, but there are also mortgages out there that aren’t being guaranteed by the federal government. Plus, a lower credit score will still negatively affect the rates and fees you pay for any car loans, credit cards, etc.
- It’s a slippery slope. While not everyone who has a lower credit score has done something blatantly or intentionally wrong with finances in their life, it’s often due to negligence, or simply not trying to improve your credit score by doing the right things. On the other hand, most people with a good credit score have been deliberate about getting there and staying there. If you don’t think and feel like you need to be disciplined to be able to afford and have what you want in life, you could easily find yourself in foreclosure down the road by not worrying about the ramifications of letting things slide.
- Even though fees are going up for higher credit rating borrowers, and down for lower credit borrowers, the overall cost is still lower for higher credit borrowers. People with higher credit scores aren’t actually paying more than buyers with lower credit scores. The gap between how much in fees buyers with higher and lower credit scores has gotten smaller.
- There’s no guarantee this will be a policy that will be in place forever. Like almost everything affected by the government, this could easily change in the future. Tax codes, banking regulations, and many other things change from year to year, so don’t bank on lower credit scores being rewarded in the long term. They typically haven’t been in the past, and higher credit scores have historically been rewarded with more favorable fees, rates, and terms.
The Takeaway:
A new fee structure went into effect on May 1, 2023 that reduced the mortgage fees for home buyers with lower credit scores, while increasing them for buyers with higher credit scores.
Regardless of whether or not you have a high credit score, or a low one, it might make you feel like you don’t need to care about improving or maintaining as high of a credit score as possible.
But you should care because having a lower credit score will still cost you more when you get a mortgage than it does for those with a higher credit score, and on other types of loans and credit you might obtain. Besides, this only applies to mortgages being bought and guaranteed by the Federal Housing Finance Agency, and there’s no guarantee that this fee structure will be in place forever.
