A very good credit score is 720 or above. If you have this kind of score you still may want to increase it if you can to insure you are getting optimum credit opportunities and the lowest interest rates. However, the vast majority of people have a score of lower than 720. And, creditors love it! They simply make more money by being able to charge higher interest rates and deposits. This is when you experience the high cost of a low credit score.
Low Credit Scores and Mortgages
Regarding a home mortgage a small difference in the interest rate you pay can cost tens of thousands of dollars over the life of the loan. For example, on a $200,000 loan a 1.25% difference in the interest rate will cost about $1,800/year and $9,000 in 5 years. With a very good credit score a borrower could save as much as $250/mo, $3,000/year and $15,000 over 5 years in interest payments.
Low Credit Scores and Car Loans
A car loan is even more dramatic due to the wide range of interest rates being offered depending on credit score. Someone with stellar credit can get close to 0% interest or perhaps less than 2%. However, interest rates up to and over 20% can be charged to borrowers with credit scores as low as the 500’s. The difference on a car that costs $15,000 is dramatic. 2% interest on a $15,000 car loan is about $25/month while 20% is $250/month just in interest. This is another example of the high cost of a low credit score.
The High Cost of a Low Credit Score
A low credit score may also cause people to have to pay utility deposits and deposits on mobile phones while others with higher scores pay no deposits at all.
And a low credit score can cost people employment opportunities. Approximately 60% of employers now do some sort of credit check on applicants.
Did you also know that a lower credit score can, depending on your insurance company, cause higher premiums for auto and home owners insurance?
Know Your Rights! Get Derogatory Items Removed
Based on the high cost of a low credit score it is a smart move to see if your score can be increased by removing derogatory items such as erroneous and obsolete items. As well, it is possible to challenge other items on your report to see if the creditor can or will verify the accuracy of the item. If they cannot or choose not to, that item must by federal law be deleted from your credit report thus increasing your credit score.
Call us today at 727-222-0120 or visit ERA Credit Services