Save Money By Boosting Your Credit Score
Did you know your credit score has a direct impact on how much money you pay on loans, credit cards, and certain other services? Banks and other businesses use credit scores as part of risk-based pricing. The lower your score, the riskier lenders think you are, and the more you’ll have to pay on loans and security deposits. Repairing your credit or even boosting it a few points can save you tens – and even hundreds – of thousands of dollars over the years.
Cost of a Low Credit Score
With a low score, you may be able to get approved for credit cards and loans but at a higher interest rate. With a credit score of 550, you would have the following interest rates and monthly payments:
· 30-year fixed $200K mortgage @ 10.85%: $1,883 per month.
· 60-month $20K auto loan @ 18.12%: $509 per month.
· $10K credit card debt @ 18.93%: $259 per month.
· Total Monthly Debt Payments: $2,651.
Example Savings With Credit Repair
With a score of 700, your interest rates and payments would be considerably lower, even with the same loan amounts:
· Mortgage @ 7.81%, $1441 per month. Savings = $442.
· Auto loan @13.05%, $455 per month. Savings = $54.
· Credit card debt @ 14.45%, $235 per month. Savings = $24.
· Total monthly savings: $519.
Over the life of these loans, you could save more than $160,000! If you invested $519 per month at 5% for 30 years, you would earn close to $250,000 in interest for an investment value of $433,742.90.
Example Credit Score Boost
Even if you already have a good score, e.g. 700, you can still receive savings by improving it just a few points. Consider the impact of raising your score from 700 to 760:
· Mortgage @ 6.57%, monthly payment: $1,273. Savings = $168.
· Auto loan @ 10.98%, monthly payment: $435. Savings = $20.
· Credit card debt @ 12.62%, monthly payment: $226. Savings = $9.
· Total monthly savings: $197.
· Total savings over loan terms: $62,379.
Investing $197 per months at 5% for 30 years would give you a future investment value of almost $165,000.
Tips to Raise Your Score
If you don’t have the ideal score, you can save a lot of money if you improve your credit score before you take out a big loan. There are several strategies you can use to raise your credit score, but the strategy you choose depends on your credit history. For example, if your credit report has errors that are affecting your score, you should dispute these errors to remove them from your report.
Late payments cause significant damage to your credit score. Catching up on past due accounts can help turn your credit score around. Clear up serious defaults like a charge-off or debt collection by paying or settling the account. You won’t be able to get a mortgage loan until these outstanding balances are paid.
The housing market is already precarious. Now the May Mortgage Report just reported that there’s a tremendous number of new foreclosures on the way, building up way more quickly than they are being cleared by foreclosure sales. How can this not result in the mortgage loan market collapsing even further?