If you borrow money for a new home or a new car, you understand the importance of your credit score. Having a good credit score can mean the difference between a great interest rate and one that is so high that it will cost you thousands of extra dollars in interest. But, what kind of interest rates can you expect based on the credit score that you have. If you have not checked your credit score in while, my financial planners and experts highly recommend that you check your credit score and credit report at least once a year. You can get a free one from each of the three credit bureaus (Experian, TransUnion, and Equifax) once each year at www.annualcreditreport.com. You can also sign up with Equifax to Monitor your FICO Score too.
What Is A Good Credit Score?
Each lender that you apply to borrow money from has set criteria as to what makes a great credit score. Many lenders start raising your interest rates if your FICO credit score has dropped below 720. So, any score above 720 is typically considered good, but you may need as high as 760 to qualify for the best 30 year mortgage. FICO is a proprietary credit score developed by the Fair Isaac Corporation, and it is practically the only credit score that matters. Over 90% of all lenders rate potential borrowers based on their FICO credit score. A FICO credit score range is from 300 to 850. One of the biggest problems with receiving your free annual credit report from the three credit bureaus is that it does not include your credit score. You have to pay for that as an extra charge (typically $20 at the most). I recently purchased my FICO credit score, and it was very interesting to see a breakdown of how different credit scores can lead to higher interest rates.
A Bad Credit Score Can Cost You Thousands
The difference between having a great credit score and just a decent one is also a difference of over 1.5% on a 30 year-fixed mortgage. It can also be a difference of 3.5% or more on a 48 month car loan. Heaven forbid if you have a poor credit score, you could be facing an interest rate of 17% of more on a car loan. While one or two percentage points do not seem like a lot initially, they can add up to some serious money over time. For example, you could pay just over $126,000 on a $200,000 home with a 30 year mortgage at today’s rate of 3.585%. Or, you could pay $68,000 more in interest payments over the course of your loan if you had a credit score of 639 or less. A poor credit score can also cost you almost $8,000 extra in interest on a new car loan if you have a poor credit score when compared to those with the best credit, 720 or higher.
While you may be quick to right off one or two percentage points on your home mortgage or car loan because you have good credit and not great credit, it would be a mistake that could cost you thousands of dollars. Now is the time to continue focusing on improving your credit score before you need it to apply for a new loan.
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{ 8 comments… read them below or add one }
Although my credit score is high, it’s kind of freeing to not worry about it. I don’t intend to get a loan ever again.
However, for those that will be borrowing (and hopefully only for a mortgage) this is a great illustration of the importance of good credit.
Kay Lynn @ Bucksome Boomer recently posted..A Travel Mistake Confession
My wife and I just ordered our reports through http://www.annualcreditreport.com and I’m glad we did. I don’t recall seeing the actual FICO credit score though. I will have to double check the reports. You should bold the sentence “If you have not checked your credit score in while, my financial planners and experts highly recommend that you check your credit score and credit report at least once a year.” This is such an important thing to do. My reports looked good but we found numerous issues on the TransUnion report for my wife. We’re talking about things like foreclosure, delinquent accounts and even a bankruptcy. None of which were accurate but still there were there and they shouldn’t have been. We’ve filed disputes over each of the issues and are waiting to hear back from TransUnion.
Zack Jones recently posted..Introducing Dave Ramsey
You can’t get your actual FICO score from annualcreditreport.com. You have to purchase it from MyFICO.com. I highly recommend it. It is $20 well spent.
Hank recently posted..Recent Articles Written Over The Past Few Weeks
It was great to see a real life example of how a low credit score can cost you money! I think many people don’t check them as often as they should, because they may be afraid of what they’ll find. However, it’s so important to be aware of what your credit score and history is, and if there is a problem, you can take steps to fix it.
Monica recently posted..Best Card to Build Credit? Secured Card vs.Debit Cards
So it pays to have a good credit score, huh? I sure know! I have an 800+ score and my husband was at 694…so that always hurt us on his credit card interest rates. i made him pay off all his cards and then also fight for a lower interest rate, once his score went up.
Newlyweds on a Budget recently posted..What would you do with $500 for Valentine’s Day?
800+…..very nice! Any tips on how you broke the 800 barrier? It seems like an awful lot of work to see increases it when you get that high.
Hank recently posted..Recent Articles Written Over The Past Few Weeks
I have only my house so I don’t think about my credit score that often. In the last 2 years it has gone down as things got rough but I will turn that around.
Jai Catalano recently posted..Who Does My Son Look Like-Mom or Dad?
Wow those numbers are eye-opening. I can’t believe people don’t check their credit before buying a house.
Marissa @ Thirty Six Months recently posted..Learning to Invest: How to Use a Mock Investment Portfolio