Increase Your Credit Score – It’s So Important Because it Will Literally Save Thousands of Dollar
If you are having trouble with attaining a loan to buy that dream home or that car you have always wanted, financial companies are turning you down or you can’t pay for your children’s schooling, well, its time you realize that credit scores are more than just numbers.
What are credit scores?
Mortgage lenders are applying strict lending standards for borrowers to meet before they establish lending them any funds. Depending on your credit score they will determine whether or not, you would be considered a risk for payment of bills. It is your credit score that determines the interest rate that you pay for your loan. Therefore, the higher the score, the lesser the interest rates you will have to pay. When it comes to getting the best loans, it is always important to have good advanced knowledge of your credit ratings and know what can be done to increase credit score.
What makes up your credit score?
- 35% payment history
- 30% amount owed
- 15% Length of credit history
- 10% credit history
- 10% Types of credit
What exactly do the credit scores mean and why are they so important?
Firstly, according to FICO, whose scoring model is used by most lenders, scores range from 300 to 850. Lenders use these scores to indicate the ‘creditworthiness’ of borrowers. Therefore, if you are a borrower with a high score chances are you will be attaining jadwal bola the best rates on your loan and significantly higher than if you have a low score. Scores above the 720 mark are considered excellent and can obtain loans easily and at good terms. Those that their score is below that are considered higher risk to lenders; therefore, they are charged higher interest rates to compensate for the higher risk.
With a higher score you are getting a much better car, house or whatever you need for the same monthly payments. This simple fact is not so clear to most people, so let’s clarify this issue with a practical example. In this example, you can see how credit scores are important and how they affect your payments.
Borrower A has a high credit score of 750, and Borrower B has a low score of 600. Let’s assume they both want to borrow $25,000 to finance a car purchase for a 60 months.
The interest rate lenders will charge Borrower A (which is of a lesser risk for them)is 6.020% and that for borrower B (which is of much higher risk for them) is 15.477%. The big difference in the interest rates they pay affects the monthly payment each is paying. Borrower A is paying $484 per month while Borrower Bis paying $601 per month. The difference between the two is $117 per month and $7,049 in total payments through the term of the loan.
If borrower A is willing to pay the same monthly payment of $601 as Borrower B, he can get a loan of $32,049 and getting a much better car costing over $7049 more. Once borrower B realizes that, it is definitely time for him to increase credit score. If he still wants to get the same $25,000 loan amount he will end up paying only $4,013 in interest payments as compared with $11,062 that Borrower B with the score of 600 will pay.
Credit scores can determine whether or not you can buy that more expensive car you have always dreamed of or should you settle for something more affordable to you with that low score. This only goes to show how a putting in a little extra effort in increasing your credit score can help you get a better loan for a better house or car while making the same down payments and monthly payments. You can in this example that the cost of not doing so is huge and for a small ongoing effort to increase credit score, pays very well.