Fair Credit Score? It Could Be Costing You Big Time.

Here’s what you need to know.

Did you know that your credit score could mean tens of thousands of dollars in loan savings — or expenses — over your lifetime? It’s true. A recent survey conducted by Lending Tree took a look at borrowing costs (loan requests and average loan balances) for people with credit scores falling into two buckets: fair (580 to 669) and very good (740 to 799). The data measured the costs of a wide variety of loans — mortgages, student loans, auto loans, personal loans and credit — and found that if you added them up, borrowers with the lower score paid an average $45,000 more on their total loan portfolio. It breaks down to about $29,000 more on the mortgage, $5,600 more on the credit card, $4,800 more on the car loan, $3,800 more on the personal loan, and $2,000 more on the student loan. The takeaway though is a biggie: Improve your score and you could save thousands of dollars over the life of your loan. Here’s what you need to know to put some of that moolah back in your pocket.

1. Borrowing is not just a yes-or-no proposition. Some people (falsely) believe you either get loans or you don’t, says Courtney Nagle, Digital and Social Media Specialist at the National Foundation for Credit Counseling. They don’t understand that your credit scores don’t just determine whether you get approved, but also the interest rate you’re asked to pay. The lower your score, the higher the risk you pose to a lender, the greater the rate of interest you’re going to pay.

2. Borrowing is not a one-and-done exercise. If your score is a little lackluster, what this study shows is that raising it even a little bit could save you hundreds of dollars in interest over the life of a loan. The longer the term, the more you stand to save by working on your score and refinancing.

3. All lenders aren’t created equal. “Many lenders have “score cut offs” and if your score is even just a few points above the score cut off you qualify for better terms and interest rates,” says says Jeff Richardson, Vice President of VantageScore Solutions. “If your score isn’t as high as you’d like it to be — shop around. Some lenders may offer better terms and interest rates for lower scoring applicants,” says Richardson

So how can you boost your credit score? “Just practice good credit behaviors and open up new accounts only when you need them,” says Richardson. Then, make your payments on time every time, creating a budget and a plan to pay down your debt to decrease the percentage of your available credit that you’re using (also called your credit utilization) and if you are struggling and can’t seem to get out of debt, consider credit counseling. “They can help you figure out the root of the problem and help you develop a strategy and plan to financial freedom,” says Nagle.

With Hattie Burgher

Jean Chatzky

Latest Posts

Powered by: SavvyMoney