Your Credit Score is Costing You Thousands.

If you're not aboard the credit train already, there's no better time to jump on, except for maybe yesterday. Climb aboard and hang on for dear life because this rapid, unforgiving railroad will decide your future financial stability and your chances of owning your dream home with that quaint little garden out back.

By now, you probably (or hopefully) know the basics of the credit industry. You know that you have a credit score, or three, and those scores are what kept you from getting the auto loan for the car you wanted or the credit card to your favorite department store. You know that your score is based on a few things like how responsible you are when it comes to money, how much debt you have, and whether or not you're making your payments on time. If you're not familiar with the basics of credit and you'd like to learn more, click here to take a look at my post, "What Is Credit?". Go ahead and pat yourself on the back if you already knew all of the above. Not bad. However, did you have any idea that the difference between a credit score of 630 and a score of 730 will cost you up to $57,400 in interest alone on a mortgage loan? Whoa! And that's just in interest! Don't believe me? I don't blame you. I almost didn't believe it myself, but let's do the math together and I can prove it to you:

In this example, I have used the Loan Savings Calculator on myfico.com. I always base my credit related decisions and advice on the FICO score because it is the most commonly used score in the nation. I calculated different interest rates for a mortgage on a $200,000 home paid in a 30-year fixed term.

With a 730 credit score, the monthly payments would be about $900.00 a month. In total, the entirety of the payment would be $324,000.00.
With a credit score of 630, the monthly payments would be roughly $1,059.00, bringing the entire loan + interest to $381,000.00.

See? I wasn't bluffing. A difference of just 100 points in your credit rating could cost you $57,000 in interest on your home – that is if you're approved for the home in the first place. If your credit score is 620 or lower, you're paying about $66,000 more on a home loan than someone who possesses a score of 760 or higher. That's unbelievable! What about your interest payment on a car loan? Are you saving or spending an extra four grand?

 

Now that you've been properly introduced to the three headed monster, it's time to turn those scores into tools that will save you thousands of dollars in the long run and guarantee credit approval for the home of your dreams.

It is a common belief of mine that to tame any beast, the two of you must get better acquainted first. If you're going to repair your credit in a decent matter of time, you'll need to know what specific factors are used to generate the score. I will use the FICO algorithm, because as I said before, it has become the standard score in the U.S.

Your FICO score ranges from 300 to 850 and is based on 5 different categories:

35% of your score is Payment History.

30% of your score is Amounts Owed.

15% of your score is Length of Credit.

10% of your score is New Credit.

10% of your score is Credit Mix.

Basically, to obtain an outstanding credit score you should never be late on your payments, keep yourself out of debt, and continue to build your credit length, mix, and history with more credit cards, loans, and any other lines of credit that you can get your hands on. In a perfect world, this would be possible for everyone. However, sadly it is not. Whether your reports are reamed with negative items such as collections and late payments or your score is low due to your lack of credit, I have good news for each and every one of you:

Your credit is completely, absolutely, 100% reparable. Your score will never stop fluctuating and raising it is a lot simpler than you may think! Fix your credit in a matter of months and save yourself that extra $66,000 in interest! You don't need to pay for a monthly service or get the attorneys involved. You just need to educate yourself and know the gray areas and loop holes of the industry. For some basic tricks that you can begin with in building credit and raising your score, read my post, “5 Fast and Easy Tricks to Improve Your Credit Score!”

Raising your credit score is easier than you think! Stay tuned for more helpful posts and information, coming soon!