Just How Much Money Is Your Bad Credit Costing You?
If your credit is damaged you already know that you are paying more for your financing - credit cards, automobiles, and your home than someone with strong credit. But how much more? More than you probably think. If your credit is less than perfect this is a must read.
But be forewarned - this is a bitter pill to swallow. But it can also act as a wake up call for you to take action to improve your situation. It is never too late to turn your credit around.
Tamara E. Holmes at Bankrate.com recently tackled this issue.
'For most people, a mortgage loan is where they'll reap the greatest rewards from an improved credit score.
"For the past two or three years, mortgages have been the lowest in 30 or 40 years, but that doesn't apply to everybody," says Janette E. Jones, mortgage consultant for American Home Mortgage in Bethesda, Md. "That applies to people who have excellent credit. Someone who has excellent credit can actually get a fixed-rate loan for 5.5%. However, for people who have less-than-excellent credit -- and I would say that's anything below 650 (on the FICO scale of 300 to 850) -- they're looking at an interest rate that's 1% higher, at the bare minimum."
According to MyFICO, a division of Fair Isaac, a consumer with a FICO score between 720 and 850 might get a 5.922% rate on a $200,000 30-year fixed mortgage rate. That would give him a payment of $1,189 a month and $228,072 in interest over the life of the loan. A consumer with a FICO score between 675 and 699 might get a 6.584% on the same loan, which would cost him $1,275 a month, with $259,074 in interest over the life of the loan, or $31,002 more.
The consumer with a FICO score between 620 and 674 might get a 7.734% rate and pay $1,431 per month, costing him $315,021 in interest over the life of the loan. That's $55,947 more than the middle-score borrower and $86,949 more than the borrower with excellent credit.
Worse yet, a consumer with a score between 560 and 619 might get an 8.531% rate, pay $1,542 per month and pay $355,200 in interest over the life of the loan. The difference in interest paid over the life of the loan between the first and last example is more than $127,000.'
'While the dollar amounts are most striking when it comes to primary mortgages, the effects of lower credit scores are not limited to your purchase of a home. If you want to refinance and pull out some cash to finish your basement or pay off some credit-card bills, your credit score can not only determine your interest rate, but it can also dictate how much of your equity you can cash out. The higher your credit score, the higher the amount you'll be able to pull out. "Someone with a credit score of 580 might only be able to receive 70% of the equity in their home while someone with a 600 might be able to take out more," says Jones.
Auto loans can be just as costly for people with lower credit scores. For a $20,000, 48-month auto loan, MyFICO calculates that a consumer with a score between 720 and 850 might qualify for a 6.282% rate and pay $472 per month. That same consumer would pay $2,670 in interest over the four years of the loan. A consumer with a FICO score between 660 and 689 might qualify for an 8.844% rate and pay $496 per month and $3,819 in interest over the course of the loan. That same car cost the second borrower an extra $1,149 -- $23.94 a month -- just because of a lower credit score.'
'A low credit score can also cost you more when it comes to your auto and home insurance.
Someone with a credit score of approximately 650 or higher could receive a discount of anywhere from "a few percent to 15% or even more" says Robert Hartwig, chief economist for the Insurance Information Institute.
Insurers use credit scores as one of the factors in determining what's known as an insurance score.
"We're not looking to see whether you're worthy for credit; we're trying to find the elements in the credit profile that correlate with loss behavior for insurance," says Hartwig.
Numerous studies have found that people with lower credit ratings file more claims. There are some theories as to why this is so. "Individuals who have credit problems may well be more likely to defer important maintenance on their cars and their homes," Hartwig suggests. "So those bald tires don't get replaced, the brakes don't get fixed, the leaky roof doesn't get repaired and so on and so forth."
The impact of credit scores on insurance scores varies from insurer to insurer and state to state. Some insurers only use insurance scores for screening new customers, while others routinely check the credit of existing policyholders when it's time to renew their policies. But consumers can improve their chances of qualifying for a lower premium rate by keeping their credit score in the mid-600s or above, Hartwig says.'
When it comes to your financing you have to look at the big picture. If your credit rating is costing you $500 per month more than if you had good credit think of it in terms of the total cost over several years. That is a big number. Stop throwing money away!
To learn 6 Credit Report Secrets You Must Know About Before Applying For A Home Loan go here
-Bill Burniece
If your credit is damaged you already know that you are paying more for your financing - credit cards, automobiles, and your home than someone with strong credit. But how much more? More than you probably think. If your credit is less than perfect this is a must read.
But be forewarned - this is a bitter pill to swallow. But it can also act as a wake up call for you to take action to improve your situation. It is never too late to turn your credit around.
Tamara E. Holmes at Bankrate.com recently tackled this issue.
'For most people, a mortgage loan is where they'll reap the greatest rewards from an improved credit score.
"For the past two or three years, mortgages have been the lowest in 30 or 40 years, but that doesn't apply to everybody," says Janette E. Jones, mortgage consultant for American Home Mortgage in Bethesda, Md. "That applies to people who have excellent credit. Someone who has excellent credit can actually get a fixed-rate loan for 5.5%. However, for people who have less-than-excellent credit -- and I would say that's anything below 650 (on the FICO scale of 300 to 850) -- they're looking at an interest rate that's 1% higher, at the bare minimum."
According to MyFICO, a division of Fair Isaac, a consumer with a FICO score between 720 and 850 might get a 5.922% rate on a $200,000 30-year fixed mortgage rate. That would give him a payment of $1,189 a month and $228,072 in interest over the life of the loan. A consumer with a FICO score between 675 and 699 might get a 6.584% on the same loan, which would cost him $1,275 a month, with $259,074 in interest over the life of the loan, or $31,002 more.
The consumer with a FICO score between 620 and 674 might get a 7.734% rate and pay $1,431 per month, costing him $315,021 in interest over the life of the loan. That's $55,947 more than the middle-score borrower and $86,949 more than the borrower with excellent credit.
Worse yet, a consumer with a score between 560 and 619 might get an 8.531% rate, pay $1,542 per month and pay $355,200 in interest over the life of the loan. The difference in interest paid over the life of the loan between the first and last example is more than $127,000.'
'While the dollar amounts are most striking when it comes to primary mortgages, the effects of lower credit scores are not limited to your purchase of a home. If you want to refinance and pull out some cash to finish your basement or pay off some credit-card bills, your credit score can not only determine your interest rate, but it can also dictate how much of your equity you can cash out. The higher your credit score, the higher the amount you'll be able to pull out. "Someone with a credit score of 580 might only be able to receive 70% of the equity in their home while someone with a 600 might be able to take out more," says Jones.
Auto loans can be just as costly for people with lower credit scores. For a $20,000, 48-month auto loan, MyFICO calculates that a consumer with a score between 720 and 850 might qualify for a 6.282% rate and pay $472 per month. That same consumer would pay $2,670 in interest over the four years of the loan. A consumer with a FICO score between 660 and 689 might qualify for an 8.844% rate and pay $496 per month and $3,819 in interest over the course of the loan. That same car cost the second borrower an extra $1,149 -- $23.94 a month -- just because of a lower credit score.'
'A low credit score can also cost you more when it comes to your auto and home insurance.
Someone with a credit score of approximately 650 or higher could receive a discount of anywhere from "a few percent to 15% or even more" says Robert Hartwig, chief economist for the Insurance Information Institute.
Insurers use credit scores as one of the factors in determining what's known as an insurance score.
"We're not looking to see whether you're worthy for credit; we're trying to find the elements in the credit profile that correlate with loss behavior for insurance," says Hartwig.
Numerous studies have found that people with lower credit ratings file more claims. There are some theories as to why this is so. "Individuals who have credit problems may well be more likely to defer important maintenance on their cars and their homes," Hartwig suggests. "So those bald tires don't get replaced, the brakes don't get fixed, the leaky roof doesn't get repaired and so on and so forth."
The impact of credit scores on insurance scores varies from insurer to insurer and state to state. Some insurers only use insurance scores for screening new customers, while others routinely check the credit of existing policyholders when it's time to renew their policies. But consumers can improve their chances of qualifying for a lower premium rate by keeping their credit score in the mid-600s or above, Hartwig says.'
When it comes to your financing you have to look at the big picture. If your credit rating is costing you $500 per month more than if you had good credit think of it in terms of the total cost over several years. That is a big number. Stop throwing money away!
To learn 6 Credit Report Secrets You Must Know About Before Applying For A Home Loan go here
-Bill Burniece
posted by Bill | 2:26 PM
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