How much does bad Credit Cost you in a lifetime? Has anyone ever wondered? So often those of us in the Real Estate and Mortgage business are more interested in getting a loan to close, than wondering how much that loan is costing our client due to a lack of Excellent Credit. One thing driving it all is the complection of the FICO score. How do you get a higher score, is it from paying bills on time, or is it from Having lots of credit. No one really seems to know How the Fair Issac company really comes up with the scores. What I would like to talk about here is how much having Excellent credit can make you over your lifetime. For someone with fair or even damaged credit, they will pay a premium to borrow money, due to the higher risk, than someone that has excellent credit. But at what cost? Below I have compiled a table to show just how much more money someone can accumulate by having Excellent Credit and keeping it Excellent. Some of the figures came from articles in Bankrate.com and some of the figures I came up with from dealing with my clients. These figures are just averages, but I think they can help to understand, just how much money your clients can loose by not having excellent credit.
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$20,000 Car Loan Paid Over 5 Years
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CREDIT STATUS
FICO SCORE
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RATE OF
INTEREST
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MONTHLY PAYMENT
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Additional cost Vs. Excellent Credit
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Excellent 720 and above
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4.9 %
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$ 376.51
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-0-
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Good 680 - 719
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7.0 %
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$ 396.02
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$ 1,170.49
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Fair 620 - 679
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9.0 %
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$ 415.17
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$ 2,319.43
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Mildly Damaged 580 - 619
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19.0 %
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$ 518.81
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$ 8,538.20
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Damaged 579 and Below
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29.0 %
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$ 634.84
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$ 15,499.43
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$10,000 Credit Card amortized with Minimum Payment of 3%
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CREDIT STATUS
FICO SCORE
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RATE OF
INTEREST
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YEARS TO BE PAID OFF
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Additional cost Vs. Excellent Credit
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Excellent 720 and above
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7.9 %
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15 years 1 month
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-0-
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Good 680 - 719
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12.9 %
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18 years
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$ 2717.89
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Fair 620 - 679
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15.9 %
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20 years 5 months
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$ 9,342.35
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Mildly Damaged 580 - 619
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19.9 %
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25 years
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$ 14,100..02
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Damaged 579 and Below
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24.9 %
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Over 30 years
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$ 18,894.58
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$200,000 Mortgage Loan Paid over 30 Years
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CREDIT STATUS
FICO SCORE
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RATE OF
INTEREST
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MONTHLY PAYMENT
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Additional cost Vs. Excellent Credit
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Excellent 720 and above
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5.9 %
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$ 1,073.64
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-0-
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Good 680 - 719
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7.5 %
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$ 1,398.43
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$ 116,924.40
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Fair 620 - 679
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8.5 %
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$ 1,537.83
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$ 167,108.40
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Mildly Damaged 580 - 619
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9.9 %
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$ 1,740.38
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$ 240,026.40
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Damaged 579 and Below
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12.0 %
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$ 2,057.23
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$ 354,092.40
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Everyone has the ability to have Excellent credit and keep it that way if they just learn how. Many credit websites have stated that 90% of all credit files have inaccurate information in them, and I would tend to agree. I recently looked at my credit file and found my name shown with 9 different spellings with one of the credit bureaus. I disputed that info and they deleted 6 of them and kept 3 versions of my name that I acctually have gone under. Most credit companies and identity theft companys, state you should check your credit once per year. I think you are doing yourself a dis service if you do not have a service that monitors your credit report on at least a monthy basis. I hope this information has been helpful.
Tom
;)
;)
Good post. You can see how the numbers really add up, especially with mortgage loans. One thing. I'd like to point out is that for mortgages you can typically qualify for the same rate with a 680 as you can for a 720. But for other financing 720 would be the bottom score for excellent credit.
You also make a good case as to why people ended up with interest only, or adjustable rate mortgages. As you can see. someone with damaged credit will pay almost twice as much monthly as someone with excellent credit. So obviously any program that would reduce the monthly payment would sound enticing, even if it there were adverse consequences later on.