There are myriad reasons to maintain a good credit score or to improve a low credit score. The most beneficial reason is to save money; the better your credit score, the more money you can save over time. As your credit score increases, the finance charges you’ll pay on certain credit products, such as credit cards, auto loans, mortgages, etc. decreases. The savings can be significant; adding up to tens of thousands of dollars over your lifetime.
Applying for a Mortgage
For most of us a mortgage can be the biggest purchase we will make in our lives. Take a look at this illustration of varying ranges of credit scores and the impact each can have on a $200,000, fixed-rate mortgage:
As you can see from the table, with a 630 credit score you could qualify for a 30-year fixed rate mortgage at 5.154% APR and you would end up paying $193,316 in interest over the life of the loan.
However, if you were to increase your credit score by just 30 points, your score would be 660. With this higher credit score you could qualify for a 30-year fixed rate mortgage at 4.148% APR and you would only pay $149,911 in interest, saving yourself over $43,000 in interest charges over the life of the loan. With an even better credit score, of course, your interest would be even lower, and your savings would be much greater.
The interest rates and calculations used in this illustration were taken from MyFICO.com.
An Auto Loan
An auto loan can be the second most expensive purchase we will make in our lives. Here’s an example of how maintaining a good credit score can impact your payment and save you from paying thousands in interest on a $20,000 auto loan:
As you can see from the table above, with a 580 credit score and a 60-month loan at 15.24% APR, you would end up paying $8,699 in interest over the life of the loan.
However, if you were to increase your credit score by just 40 points, your score would be 620. With this higher credit score your APR would drop to 9.72% and you would only pay $5,332 in interest, saving yourself over $3,300 in interest charges over the life of the loan. If you were to improve your credit score into the higher scoring ranges, of course, your interest would be much lower, and savings would be even greater.
With most of us financing the purchase of several vehicles throughout the course of our lives, we can multiply these results by the number of vehicles we can expect to finance and it becomes clear to see how improving and maintaining a higher credit score can end up saving you tens of thousands of dollars during your lifetime.
You can also apply these same principles to the other loans you may apply and qualify for; with a higher credit score you’ll qualify for a higher principle on the loan, the lower the interest rate will be, and the more money you’ll save over the life of the loan.
The calculations used in this illustration were taken from MyFICO.com payment calculator.
You may not realize that your credit score may plan a factor in how much you pay for your auto insurance premiums. Most states allow insurance companies to take your credit scores into account when factoring your insurance premiums. Insurance companies use data from your consumer credit reports to predict the likelihood that you’ll file a claim. Even if you’ve never filed an accident claim before, your low credit scores could be causing you to pay higher premiums. According to Consumer Reports, each year, drivers in Minnesota with a poor credit score will pay on average $1,451 more than a driver with excellent credit. A driver with a good credit score will pay $197 more, per year.
The good news is that, not matter your credit score, there are credit card options available for you. Even consumers with the lowest credit scores have options, however, they will be limited and may have to settle for a secured credit card, but the options are out there. A secured card like the CreditBuilderCard, will require a deposit to open the account and your credit limit will be limited to the amount of the deposit. Secure cards help you build and improve your credit history by reporting your positive payment history to the credit reporting agencies. Maintaining a better credit score will help you to qualify for credit cards with better terms – no annual fees, higher credit limits and lower interest rates.
Contact Boe Credit Consulting today to learn how you can have the exceptional credit you deserve.
About the Author
Jeff Boe is a graduate of National American University, a Board-Certified Credit Consultant and the President of Boe Credit Consulting. He has successfully rehabilitated his own credit profile and, since 2005, has been working with consumers to educate and help them with improving their own credit.
In 2018 he started Boe Credit Consulting in order to help even more people improve their literacy as it relates to the credit system in the U.S. as-well-as to improve their credit reports and scores so they can be free to realize their financial goals.
Boe Credit Consulting specializes in helping credit-challenged consumers improve their credit reports and scores so that they can achieve their financial goals.
For more information, visit www.BoeCredit.com
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