Thursday, November 13, 2008

What bad credit really costs you Part 1

It's not just a number

Failing to take steps to improve your credit score could cost you hundreds or thousands of extra dollars on a home loan, a car payment or a credit card or insurance bill.

Sure, you know your credit score can affect everything from whether you qualify for a mortgage to whether an employer hires you, but have you ever made a plan to consciously improve your score? If not, it can be costing you dearly.

"When it comes to mortgages, auto lending and credit cards, the higher your score, the lower the interest rate you're going to pay," says Barry Paperno, manager of customer service for credit-scoring company Fair Isaac, which created the widely used FICO credit score. So the time and effort it takes to improve your credit score could save you hundreds of thousands of dollars over the course of your lifetime.

Loans and scores

For most people, a mortgage loan is where they'll reap the greatest rewards from an improved credit score.

"For the past two or three years, mortgages have been the lowest in 30 or 40 years, but that doesn't apply to everybody," says Janette E. Jones, mortgage consultant for American Home Mortgage in Bethesda, Md. "That applies to people who have excellent credit. Someone who has excellent credit can actually get a fixed-rate loan for 5.5%. However, for people who have less-than-excellent credit -- and I would say that's anything below 650 (on the FICO scale of 300 to 850) -- they're looking at an interest rate that's 1% higher, at the bare minimum."

By Tamara E. Holmes, Bankrate.com


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1 comment:

Susan said...

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Susan

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