What you need to know about DSCR loan credit score requirements.
DSCR lenders do have credit score requirements. Your credit score is a crucial factor lenders consider when evaluating your loan application.
Credit is a way to put a number to how safe it is to loan to you. We call this “creditworthiness,” and it’s based on your credit history and financial behavior.
A higher credit score can significantly improve your chances of getting a DSCR loan and securing favorable terms, such as a lower interest rate and a higher loan-to-value (LTV).
DSCR Loans and Credit Score’s Impact
Here’s how your credit score can impact your loan options:
- A credit score of 740 or above can get you a higher LTV ratio and lower interest rate.
- A credit score between 700 and 739 may still qualify you for a loan with competitive terms.
- A credit score below 700 might make it more difficult to get approved for a loan, or could result in higher interest rates and lower LTVs.
For example, a 740 score may get you an LTV that is 5-10% higher than a 640 score, and an interest rate that is .5-2% lower.
How to Improve Your DSCR Loan Credit Score
If you’re applying for a DSCR loan, a credit score below 700 might not cut it. It’s a good idea to take steps to improve your credit.
Here are some ways to do that:
- Pay down credit card balances: Putting all renovation costs on credit cards can drag down your credit score. To avoid this, consider getting a private loan that won’t show up on your credit report to pay down your balances. A better credit score can also lead to better rates for long-term financing.
- Use an authorized user: If you have a family member or friend with good, long-established credit, ask them to add you as an authorized user. This can help boost your credit score.
- Pay your bills on time: Payment history is a key factor in your credit score. Make sure to pay all your bills, including credit cards and loans, on time. Consolidating your accounts can also help you stay organized and avoid missed payments.
- Keep open credit accounts: Even if you stop using an account, as long as it has a good history, it will continue to add a little boost to your credit.
By following these tips, you can improve your credit score and increase your chances of getting approved for a DSCR loan with favorable terms.
You can also download this free credit score checklist to get your credit score where it needs to be for your DSCR loans.
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