How Bad Credit Affects Your Interest Rate
Lower credit scores mean higher interest rates for you the borrower.
For example, the difference between damaged (below 550) and very good credit (above 700) will cost you BIG.
The difference in the interest rates offered to a person with a score of 520 and a person with a 720 score is 4.36 percentage points, according to Fair Isaac's Web site.
Here’s an example
DAMAGED CREDIT - You’re in the market for a starter home and end up with a mortgage loan of $100,000 at 12% interest for 30 years. Your payment will be $1028 (PITI) monthly. Over the life of the loan, you will have paid $370,080 in principal and interest.
GOOD CREDIT - The same loan but with a 7% interest rate (because you have a good credit score – over 700) will give you a monthly payment of $655! Your total cost, principal and interest over the life of the loan will be $239,400.
A better credit score which results in a lower interest rate just saved you $130,680!
As I said earlier, you may just get LAZY, slip up and damage your credit when it could be very easy to prevent. If you know the SIMPLE guidelines to keep good credit intact as well as how to start repairing less than perfect credit you will save TONS of money.
Keep your credit score over 700