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Over the course of your life you will need things that you can only buy on credit.
Big things. A house. A car. Dream vacations, or tuition fees.
Most people have to fund these things. And a poor score will make them more expensive because you will pay more interest.
A LendingTree survey sheds light on exactly how much a lower credit score can cost you over the course of your life.
The site analyzed loan applications and average loan balances for an apple-to-apple comparison of the cost of loans for people with different scores: fair (580 to 669) and very good (740 to 799). LendingTree data measures the costs of five types of loans: mortgage, student, auto, personal, and credit card.
Two marked price differences emerged from the data. People who take out a car loan with a reasonable credit score can expect to pay 311% more interest on the same loan as someone with very good credit. Personal loan borrowers can pay 271% more in interest.
Overall, the additional interest charges if you take out loans with a reasonable credit score – versus a very good one – could be as high as $ 45,000.
“This is extremely important over a lifetime,” said Kali McFadden, senior research analyst and author of the report. And everything is determined by your credit score.
Many people equate qualifying for a loan with getting the best possible rate for that loan.
Not true. “People’s scores change over the course of a lifetime,” McFadden said. “They finance more than one car, take on more than one set of credit card debt.”
The real point to remember, says McFadden, is to increase your credit score. Even a slight increase can make a difference that will save you money.
That $ 45,000 is more than what most people earn in a year, so it’s worth taking the time to study your credit score and take action to improve it.
“It might sound intimidating, but it’s not difficult,” McFadden said.
Check out some of the many useful tools online. “Most credit cards offer credit monitoring services,” McFadden said. “You can find out why your score has changed and get tips on how to improve it. “
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The easiest things to do are reduce any credit card debt you carry and be scrupulous about paying on time. Another tip: reduce your debt-to-credit ratio. Keeping those ratios below 30% will work in your favor, McFadden said.
“Call your creditors and ask them to increase your credit amounts to improve that ratio,” McFadden said. “Plus, there’s nothing wrong with asking for a reduction in your credit card rate. It’s amazing how many times people can be successful.
In the table below, use the dark gray scroll bar to view the difference in total cost for payments made by borrowers with different credit scores.
“You will be happy to see the progress as you go,” said McFadden.
The online tools are anonymous and non-judgmental, McFadden said, which is helpful with an emotional topic like credit scoring. “People think it reflects who they are and they’re intimidated,” McFadden said. “But they feel real relief when they take the steps and see progress.”
Now is a good time to work on your credit to improve your rate. “The Fed is raising rates faster than expected,” McFadden said. “Less than a year ago, if you had really good credit, mortgages were at 4%.
Since rates could continue to rise – McFadden said they are starting to see 5% for the typical home borrower – now is a great time to work on your score before refinancing.