Remember “The Golden Rule to Credit”…the higher the better when it comes to a credit score.
Consumers have four primary advantages with a higher credit score:
- Reduces the pain of interest rate hikes,
- Borrowers qualify for a lower interest rates,
- Saves money on your monthly loan payments ,
- A higher score will also more likely qualify for the loan.
Below is a working example comparing two consumers exactly alike in all cases except Borrower A has done a better job of monitoring their credit and has a higher credit score at 740 compared to Borrower B who hasn’t monitored their credit as closely and has a lower credit score of 620.
Note how individual credit affects how much each will pay for a mortgage, all other things but credit monitoring and credit score are the same:
Example: Credit and Mortgage Interest Rates
Borrower A and B are identical in all ways except Borrower A monitors her credit – paying bills on time, utilizing outstanding lines of credit wisely – while Borrower B is very casual about paying bills, sometimes does not pay utilities and causing these bills to be turned over to a collection agency. Borrower B applied for any credit card application in front of him at the moment.
When it came time to purchase a home, Borrower B will pay an additional $281 per month on a $350,000 mortgage for not monitoring their credit. The additional cost was due to Borrower B receiving a higher interest rate than Borrower A. A credit score affects the lending rate for every consumer.
Credit score: 740 “Excellent”
Avg. Interest rate: 7.12%*
Monthly Mortgage Payment: $2,357
Credit Savings: $281 p/mo.
Credit score: 620 “Poor”
Avg. Interest rate: 8.284%*
Monthly Mortgage Payment: $2,638
Credit Cost: $281 p/mo.
Can Credit and Credit Scores Be Improved?
Consumers may improve a low credit score, but it won’t happen overnight. Time – not much – and a good deal of patience and a dash of discipline is needed to improve credit.
To get your credit on track, visit with DuTrac.
*Borrower A has a mortgage interest rate of 7.12% due to a credit score of 740 or “Excellent.” Borrower B has a mortgage interest rate of 8.284% due to a credit score of 620 or “Poor.” A higher credit score lowers rate by 1.164% and saves $281 per month. Based on national mortgage rates, not those of DuTrac, as of January 3, 2023, on a 30-year mortgage amount of $350,000.