Having a solid credit history is necessary when it comes to large purchases such as homes, cars, boats, and in order to receive the best rates and not pay extreme amounts on interest to secure the loan, you will need to stay on top of your credit to ensure you are a responsible borrower. MyFICO posted a disclosure on how many “damage points” will be taken away from credit scores with five mistakes that you can make.
- 30-days late: 60-110 points
- Debt settlement: 45-125 points
- Foreclosure: 85-160 points
- Bankruptcy: 130-240 points
- Maxed-out card: 10-45 points
In order to receive the most favorable rates, typically scores above 730 are needed, so although perfect scores of 850 may be unattainable for you at the moment, you will need to work on improving scores right away if you fall below 700.
Higher Interest = Huge Payments
If you think there is not much difference in between average and good credit, or mortgage rates a percent or two off, you are way off. If you take a $150,000, 30-year fixed mortgage, with credit scores of 620, could secure you an interest rate of almost 5% APR. With minimum payments over the course of 30 years, the interest could add up to over $90,000. If only you had a higher credit score and could receive current low market rates just over 3%, the interest over the life of the loan would be over $55,000, savings of $35,000. Just think of all of that extra money that could be in a savings account growing over 30 years.
Bad credit can be a huge financial burden on you and your family, so if you have not started to make improvements, now is the time. Pay down balances each month, make on-on time payments, and you will notice month over month that your scores will increase. Online statements now show your FICO score, so you can see the improvements. As soon as you get your score under control, refinance your current high mortgage rate into market lows that you will now be able to take advantage of and you could be saving hundreds of dollars a month in interest. Having great credit does not happen overnight; it takes patience and discipline. If you are having trouble paying down balances, then you will need to take a look at further eliminating unnecessary spending so that more will be allocated to paying down balances.