What’s Your Credit Score Worth? (It turns out, a lot!)
Your credit score is just a number, but chances are it has already had a measurable effect on your wallet.
Your credit score is one way potential lenders, landlords, employers—and even partners—use as a stand-in for how responsible and reliable you might be. If you have a great credit score, you’ll likely benefit by paying less interest and having more opportunities to achieve certain personal and professional goals.
Your credit score directly affects how much you pay in interest when:
- Buying a house
- Buying a car
- Financing education
- Paying off debt
If your credit is bad, it could be more difficult to achieve:
- Renting an apartment
- Getting a loan for a major purchase
- Getting a new job
- Opening a checking account
Real impact on your wallet
To help illustrate how your credit score could affect you over the course of time, let’s look at how the same situation plays out for 3 different theoretical people with Excellent, Fair, and Poor credit according to myFico’s loan savings calculator. In this scenario, the home is listed at $300,000 and purchased with a 30-year fixed rate loan, and the car is $20,000, purchased with a fixed rate 36-month loan term.
Consumers with a poor credit score often find it difficult to qualify for a mortgage. For illustrative purposes, we used a rate of 9.75%, with a 30% down payment, often a home loan requirement for those with poor credit. For that same house, you would need to put $100,000 down in cash, and take out a $200,000 loan at 9.75% APR. Total interest is $418,951 – more than twice the principal, and more than the house is worth!
With the same purchase amounts and payoff schedules, compared to the person with poor credit, the person with excellent credit saved almost $4000 in interest on their car, and saved over $200,000 in interest on their home! To put that in perspective, the person with excellent credit could buy a whole other property with interest savings alone. And the car buyer with excellent credit saved enough for a fancy trip around the world!
It literally pays to have excellent credit.
Over the course of 30+ years, you’re probably going to buy more than 1 car, and finance major costs like moving and education. Considering how much interest you can pay over time, it’s worth the effort to maintain or improve your credit. It could lead to hundreds of thousands of dollars in savings over the course of a lifetime.
Beyond savings, there are intangibles worth considering. It can be stressful to wonder if your poor credit led you to miss out on a great job or apartment. And if you have bad credit, it could even lead your romantic partner to hesitate at the idea of marriage. Nobody wants that!
The good news is you have the power to steer your credit score in the right direction, and small changes can have a big impact. Here are 5 Tips to Improve Your Credit Score.