Your credit card score has a huge impact on your everyday life and the amount that you pay for necessities.
Look at the chart below, which shows your expected interest rate on a 30-year fixed-rate mortgage, depending on your current credit score:
Credit Score = Interest Rate
760-850 = 3.90%
700-759 = 4.10%
680-699 = 4.30%
660-679 = 4.50%
640-659 = 4.90%
620-639 = 5.50%
So with a credit score of 620, your interest rate could be as much as 1.6 percent points higher than if you had a score of 760. Now, you might think it doesn’t matter because, really, there’s not much difference between 3.9% and 5.5 %.
Wrong. For big purchases, like houses and cars, such a seemingly small difference can result in almost unimaginable extra costs over the life of the loan. Let’s take the 30-year fixed-rate mortgage loan above as an example, on a home loan of $200,000. Here is what you can expect to pay, based on your interest rate:
|Interest Rate||Monthly Payment||Interest 30 Yrs|
So, let’s think about that
Yes, you read that right. A lower credit score can cost you an extra $68,000 on a 30-year home loan. And you’ll see similar (though not as drastic) effects on auto loans and other large purchases.
Now that we’re all in agreement about the importance of understanding your credit score, we can dive into the details…
Credit scores are compiled by the Fair Isaac Corporation (FICO), and for that reason, they’re often called FICO scores. Lenders rely on these scores and the accompanying credit reports to determine your likelihood of defaulting on a loan. When you apply for a loan, the bank or lender will pay one of the three main credit bureaus (Transunion, Experian, and Equifax) to obtain your report.
The question is, how can you easily improve your credit score to save yourself money in the long run?
Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida. For more information, go to our web site www.BankruptcyforTampa.com or call 727-334-0729.