Many fail to realize that an excellent way to build wealth and save money is through having an excellent credit score. People often face the challenge of increasing their savings rate beyond 10%, and keeping a good credit score is an excellent but extremely overlooked way to do so. There are some instances where interest rates are greatly affected by credit scores and a poor versus a good credit score can be the difference between saving and paying tens of thousands of dollars.
Here are some instances where credit scores can have a big impact:
Since mortgages are for huge sums of money and amortized over a long time interest rates can make a huge difference in pricing. According to myfico.com, a credit score of 760 will qualify a homebuyer for an interest rate of 3.473% (rates may vary). On the other hand, a 620 score will qualify at a much higher rate of 5.062%.
With a 30-year mortgage of $250,000, the 720 score would have a monthly payment of $1,119, while the 620 score would have a monthly payment of $1,352. In addition, from $152,785 to $236,555, a difference of $83,770 over the life of the loan. As you can see from this example, a credit score can make a huge impact on mortgage savings, and the ability to get your dream home.
Credit scores also have a large impact on refinancing student loans. There are a large number of ways to refinance your student debt, and the majority relies on credit scores for their rates.
For example, one company offers refinance rates ranging from 4.615% to 6.50% for a 10 year fixed-rate loan. They also state that applicants should have a credit score around 725 or higher to get the best rates. A $50,000 loan for 10 years at the 4.615% rate would result in monthly payments of about $521, and a total interest payment of $12,522. On the other hand, the higher rate would result in monthly payments of $568, leading to a total interest cost of $18,138, or $5616 higher than the better rate.
In addition, if there are credit issues that are causing a poor score, using a reputable credit repair company can make a huge difference. The cost of these companies should be negligible compared to the amount of savings a good score will provide. Consumers need to be aware that the difference of a good and poor credit score can cost thousands per year, or hundreds of thousands over a few decades. Financing and real estate professionals should also be aware of this in order to gain more clientele and keep them satisfied.