Credit Scores and Flip Loans: How Much Your Score Really Matters

Flip lenders are asset-based, so the property and the plan carry more weight than your credit score. Credit still matters, though. Most private lenders have a minimum, and your score can shape your rate, your leverage and how much cash you need to bring.

There is usually a floor

Many private lenders set a minimum score somewhere in the 600s, which is often below what banks want for an investment property mortgage. Some will go lower if the rest of the file is strong. RSC Private Lending's Fix & Flip program requires a minimum FICO of 620.

Why an asset-based lender checks credit at all

Your credit report is a quick read on how you handle obligations. Lenders use it to:

• Gauge how likely you are to make payments on time
• Set risk-based pricing
• Decide how much leverage to offer
• Spot past financial stress that could affect this project

It is one input, not the deciding factor. A great deal with an average score often beats a weak deal with a high score.

How score tiers can change your terms

Many lenders price in tiers. Moving up a tier can mean a lower rate, a higher loan-to-cost cap, or both. Dropping a tier can mean the opposite, or a request for extra reserves. At RSC, final pricing depends on experience, credit, leverage and location, and the published Fix & Flip rates assume a 760+ FICO.

Example (illustrative only): Two investors bring the same $250,000 project. One has a 740 score, the other a 650. The first might get a slightly lower rate and a bit more leverage. The second might need to bring an extra few thousand dollars in cash or show more reserves. Same deal, different terms.

Underwriters read the whole report

The three-digit number is only the headline. Lenders also look at:

• Late payments, especially on mortgages
• Recent bankruptcy, foreclosure or short sale
• Unpaid judgments or tax liens
• How much of your revolving credit you are using
• A spike in new accounts or inquiries

A slightly lower score with a clean history can look better than a higher score with a recent foreclosure.

Improving your position

Raising your score before you apply

Start a few months out if you can:

• Pay revolving balances down to lower utilization
• Dispute errors on your reports
• Hold off on new credit applications
• Keep older accounts open
• Bring past-due accounts current

If your score is not there yet

You still have options. Add a partner with stronger credit, though some lenders qualify on the lowest score in the group. Bring more cash to the deal. Show larger reserves. Lean on a strong track record. Or fix the report and come back in a few months. Expect a lower score to cost more, even when the deal gets done.

What this means for you

Know your score and your report before you shop for a loan. Then lead with your strengths: the deal, your cash and your experience.

Not sure where your credit puts you? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.