It’s never so obvious how important good credit is as when you apply for a loan. When you walk into a lender’s office with a credit score of 720 or higher, you can have confidence that you’ll be offered good interest rates.
Lenders want to minimize their risks, so the lower your credit scores, the higher interest rates they’ll feel entitled to charge you.
If your credit scores are low enough, that may disqualify you from a loan altogether. Or, you may face price-gouging from less reputable lending institutions such as payday loans or title loans. These types of predatory loans can carry interest rates of over 400%.
Your Credit Scores Directly Affect Your Interest Rates
To break this down, let’s use a couple of examples.
Say you’re applying for a car loan. You need $20,000 for your new car and you want to pay back your loan over a five-year term.
First, let’s say you have a credit score of only 620. According to FICO’s loan savings calculator, you would be charged an interest rate of about 10.5% and pay a total of $5,760 in interest.
Now, we’ll compare that to the same loan with a credit score of 720. You would qualify for less than 4% interest, saving you $3,683 in interest alone.
A Few Points Equals Thousands
For a second illustration, we’ll imagine you’re trying to consolidate your debts with a personal loan. There are a few lenders who will still offer loans to those with credit score even as low as 580. But you can expect interest rates as high as 30%
Building your credit score up just to 660 would nearly cut your interest rate in half to 17%. Bump up your credit score to 760, and you would more than halve your interest rate again to only 8%.
Now, just imagine these kinds of differences applied over the life of a 30-year mortgage! On any of these loans, increasing your credit scores can save you thousands of dollars. But on a mortgage? It could be tens of thousands!
Obviously, your credit score can make a huge difference in the amount of interest you’ll pay on your loans. Most people still don’t realize just how huge of a difference it can be, to the tune of thousands of dollars.
Therein lies a big opportunity for borrowers! Increasing your credit scores before you apply for loans can make all the difference. You can try to go it alone, yes, but if you want faster results and a better chance of making a bigger impact, our credit professionals are ready to help. Just call or message us today.