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Your Score and Credit
Your credit score will have a profound effect on whether or not you qualify
for a loan, a credit card or some other form of credit.
What’s more, your score will influence the price you have to pay for
that credit. The higher your score, the lower your interest rate.
Your credit score can even have an effect on credit cards you already have.
That’s because some card issuers check your credit score before increasing
your credit limit—or increasing your interest rate.
Fair, Isaac claims that, if your FICO score is 720 or higher, you will
usually qualify for the best available interest rate on a mortgage.
So, you don’t need to improve your credit score if it’s 720 or
higher, since you’re already getting the best deals on credit. However,
if your score is 719, you will definitely want to take steps to boost it.
The difference, in terms of cost of credit, between a score of 719 and
720 can be fairly substantial when it comes to borrowing money. And the
difference between a score of 620 and a score of 720 can be really dramatic.
If you’re looking at a 30-year fixed-rate mortgage of $200,000, the
following chart shows the effect your credit score will have on the interest
rate you receive, the monthly payment you’ll have to make and the total
amount of interest you’ll pay over the life of the loan. (The interest
rates shown are averaged based on the rates offered by many different lenders.
They are a snapshot and may not be timely when you’re reading this book.
But the comparisons should remain useful.)
| FICO Score |
APR |
Monthly Payment |
Total Interest Paid |
| 720-850 |
5.677% |
$1,158 |
$216,839 |
| 700-719 |
5.802% |
$1,174 |
$222,554 |
| 675-699 |
6.340% |
$1,243 |
$247,539 |
| 620-674 |
7.490% |
$1,397 |
$302,942 |
| 560-619 |
8.531% |
$1,542 |
$355,200 |
| 500-559 |
9.289% |
$1,651 |
$394,362 |
So, if you have a score of 620, you’ll be paying $86,103 more over
the term of a 30-year loan than you would if you had a score of 720. And if
you have a score of 520, you’ll be paying $177,523 more than if you
had a score of 720—not to mention $493 more each and every month.
To see how your credit score affects your rates, visit Fair, Isaac &
Co.’s Web site, (www.myfico.com)
and use the Loan Savings Calculator.
Next: Conclusion |
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