Is your credit good or just good enough?Â Do you know the difference and how much of an effect it can have on your finances?
Most of us know that having terrible credit can exclude you from getting a loan.Â
Many of us also know that having lower credit scores results in higher
interest payments and fees for things like credit cards, auto loans, and
mortgages.Â Is your credit good enough to get a loan?Â If so, is your
credit GOOD, or just GOOD ENOUGH?Â Does it matter?Â Let's take a look...
Have a 660 FICO score?Â Not bad!Â Not considered perfect, but considered a decent score.Â You could certainly get some loan options based on that score.Â BUT - would getting your score higher be worthwhile?
Let's take a look at the numbers, just on a mortgage loan -
The difference between a 660 FICO score and 725 FICO score will generally result in about a half percent change in interest rate - for this example, we'll use 3.625% for the 725 score and 4.125% for the 660 FICO.
$200,000 loan amount, 30 year fixed rate mortgage -
725 FICO, 3.625% interest rate
Total finance charge over life of loan = $128,360 in interest
660 FICO, 4.125% rate
Total finance charge = $148,947 in interest
Taking that FICO score from good enough to really good would save about $20,000
in interest over the life of a loan - and that's just a single 30 year
mortgage - Now factor in all of the car loans with higher rates, credit
cards with higher rates, and higher insurance premiums along the way -
we're talking a LOT of money.
Also, most home buyers these days don't have 20% to put downÂ
and thus rely on mortgage insurance to allow them to buy a home with as
little as 5% down (for conventional loans).Â Well, guess what else also
takes FICO scores into consideration for pricing?Â Yep, that PMI can be
pricey depending on your credit score.
For the same $200,000 loan above, a borrower with 5% down would see the following:
660 FICO - $200/month mortgage insurance
725 FICO - $111/month mortgage insurance -Â $89/month savings, or more than $1000/year!
important to remember that until you (and your clients) credit scores
are above the 750-760 range it's always a good move to try to get them
higher - credit repair is NOT just for people with poor credit.Â Credit repair is also not always a long, tedious, process - sometimes it's as simple as a few simple fixes or updates.
here for an article on how the difference between poor or OK credit and
perfect credit can cost someone in the ballpark of $1 MILLION in their
When having excellent credit can save you a ton of money, don't settle for good enough!