The higher your FICO score, the more likely you are to be approved for credit and to get the best terms, like lower loan fees and interest rates. On the other hand, a low credit score is likely to prompt a lender to deny your application for credit or charge higher financing costs.
Good Credit
For a score with a range between 300-850, credit score rating of 700 or above is great. A score of 800 or more is fantastic. Most FICO assessments fall somewhere around 600 and 750. Higher scores suggest that you make better credit choices and tell banks you’re more likely to pay off your future loans or other financial obligations.
Lenders and banks who are the ones providing the loans will usually look at your credit score before deciding whether lending to you will be low or high risk. They will look at your credit and the terms of the initial offer (ex. interest and even down payment) will be so they can also make a decision. There are many different types of credit scores. FICO® Scores are the most common credit scores, but industry-specific scores also exist.
your credit and what the terms of the offer (such as the interest rate or down payment) will be. There are many different types of credit scores. FICO® Scores are the most common credit scores, but industry-specific scores also exist.
In general, higher credit scores equate to lower interest rates, meaning less cash you’ll have to fork over during the life of a loan. Most notably, experts who work with credit believe that a score of more than 720 can get you the best interest rate. In 2007, the national average FICO score is 723, and 58% of Americans have a score higher than 700, according to Fair Isaac.
Remember that your credit score is important, but it’s not the sole factor in whether you get approved for a loan, credit card, or other forms of credit. Lenders will also take a look at your job history, different factors like taxes and credit history, but most importantly your annual income as well.
Bad Credit
Bad credit is expensive, period. Higher rates and fees can make finance cost prohibitive. Many people run into situations where they start off with high credit which turns into bad credit due to job loss, divorce, lack of knowledge of the financial system, or a financial hardship.
One of the real reasons the poor stay poor is because they are “nickel and dimed” with higher financing rates and fees. This is the real cost of having bad credit. The people with poor credit are more likely to be people on the lower end of the economic spectrum, which means the least able to afford it have to pay the most. While that makes sense, because there is a higher risk for the money lender… it also causes real problems because it keeps those low income people from rising out of their circumstances. If that low wage worker could take that $166/mo and put it into a retirement account, it would be life altering for him.
The easiest and most direct way to handle this problem is for the person with poor credit, no matter how much money they make, to clean up and repair their credit. Get inaccuracies or duplicate items off. Update their address. Hold creditors feet to the fire and make sure they have all of their documentation in order…or make sure they remove a negative report.
I assume you’re reading this book because you have some credit problems. By making sure everything is accurate on your report, you’ll be able to increase your credit score. And a higher score means lower rates and better terms. If you act responsibility with your finances, you’ll be able to use that monthly savings to change your financial life.
It’s also about you being able to retire without any financial worries. The information in this book can truly change your life, by helping you change your credit score.
Examples of car loan
For example, a 36-month new automobile loan APRs are in the table below. A Loan Amount of $25,000, 36 months and Interest rates are changed based on the credit score of the borrower. (Variable rate credits might be accessible yet are not normally gainful to a purchaser in a low loan interest environment.)
| Credit | Score | Rate | Payment | Added Cost |
| Excellent | 720-850 | 5.30% | $753 | $0 |
| 700-719 | 6.83% | $770 | $612 | |
| Moderate | 675-699 | 8.78% | $792 | $1,404 |
| 620-674 | 12.36% | $835 | $2,952 | |
| Bad | 560-559 | 18.20% | $906 | $5,508 |
| 500-559 | 19.23% | $919 | $5,976 |
Notice that the person with bad credit is paying $166/mo more for the exact same car.
Examples of House Loan
Below to show you how much more someone with bad credit pays for a home loan.
| Credit | Score | Rate | Payment | Added Cost |
| Excellent | 720-850 | 4.31% | $1,487 | $0 |
| 700-719 | 4.53% | $1,526 | $14,040 | |
| Moderate | 675-699 | 4.71% | $1,558 | $25,560 |
| 620-674 | 4.93% | $1,597 | $39,600 | |
| Bad | 560-559 | 5.36% | $1,676 | $68,040 |
| 500-559 | 5.90% | $1,780 | $105,480 |
Credit card debt:
| Card Type | Score | Rate | Balance | Added Cost |
| Platinum | 720-850 | 4% | $5,000 | $0 |
| 700-719 | 6% | $5,000 | $362 | |
| Gold | 675-699 | 8% | $5,000 | $774 |
| 620-674 | 10% | $5,000 | $1,250 | |
| Standard | 560-559 | 16% | $5,000 | $3,240 |
| 500-559 | 23% | $5,000 | $7,856 |
I bet you’ve never really taken a look at how much more you’re paying because of bad credit. It’s likely you are focused on getting loans, rather than how much the loans cost you.
That’s because you’ve never been shown how much it cost to have bad credit. It was once I started realizing how much it cost me that I started trying to live within my means and stop getting into more and more debt.
I really started to understand the power of good credit when I bought a new car. It was a Kia, and I was paying almost 20% for the loan! A friend of mine, with a nicer car, had lower payments… and didn’t have to put any money down.
He walked on the lot, they ran his credit, he signed the paperwork and drove off.
I had to come up with thousands and my payments were higher. That’s when it clicked for me…I hope it has for you as well. How much better would you live, today and in the future, if you had nicer things, lower payments and could afford to actually save some money?
Dana George-Berberich is a freelance reporter and novelist. She has written finance articles for newspapers across the country and for companies like Dun & Bradstreet and Bankrate.
