Most credit score guides focus on how buying a house or car will impact your credit score.
But what they fail to mention is the significant impact your credit score has on the price you pay for a mortgage or car loan.
You won’t realize the true benefit of a 650+ credit score until you try to buy a big ticket item like a car or the ultimate purchase, a home to call your own.
The real power of a credit score comes from building financial trust with the banks early so you can borrow large sums of money from them for cheap later.
Our research below demonstrates how different credit scores oftentimes lead to drastically different borrowing costs.
Impact of Your Credit Score on the Cost of a House
- Excellent (760-850) – Your credit score will have no impact on your interest rate. You will likely be offered the lowest rate available.
- Very good (700-760) – Your credit score may have a minimal impact on your interest rate. You could be offered an interest rate 0.25% higher than the lowest available.
- Good (660-699) – Your credit score may have a small impact on your interest rate. This means rates up to .5% higher than the lowest available are possible.
- Moderate (620-660) – Your credit score will affect your interest rate. Be prepared for rates up to 1.5% higher than the lowest available.
- Poor (580-620) – Your credit score is going to seriously affect your interest rates. You may be hit with rates 2-4% higher than the lowest available.
- Very Poor (500-580) – This is trouble. If you are offered a mortgage at all, you’ll be paying some very high rates.
What this means for you: If you have a moderate credit score you will pay 20% more a month ($200 a month) on a $200,000 loan than a borrower with excellent credit.
Over the life of a 30-year mortgage, you are paying $65,000 more in interest than someone with an excellent credit score.
Impact of your credit score on buying a car
- Excellent (750-850): 2.0%-2.6% interest
- Good (700-749): 2%-3% interest
- Fair (640-699): 4.9%-8.0% interest
- Poor (639 or less): 8%+ interest
What this means for you: If you have a poor credit score and borrow $10,000 to buy a car you will pay 20% more a month ($30 a month) than if you had an excellent credit score. Over the life of a 3-year car loan, you will pay $1,100 more in interest or 10% of the original price of the car.
Never Forget the Power of a Credit Score
As the housing and car example above should have made clear, a good credit score will lead to huge financial benefits throughout your life.
Good and bad financial decisions have a way of snowballing into even larger increases or decreases in your bank account down the road.
The best decision you can make is to pay off small credit card balances on time so that down the road when you want to borrow hundreds of thousands of dollars, banks will be falling all over themselves to give you the money.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.