Why care about your credit score, anyway?
If you’re considering purchasing a home, here’s an example of the impact different credit scores can make on your interest rates… which translates to your monthly payments… which dictates the price of the home you can afford.
719 credit score $1,900/month for Home “A”
-40 679 credit score +$60 $1,960/mo for same Home “A”
-30 -70 649 credit score +$240 +$300 $2,200/mo for same Home “A”
You have a 719 credit score and you qualify to buy a $350,000 home.
If your credit score goes down to 679, you will only qualify for $340,000.
If your credit score goes down to 649, you will only qualify for $315,000.
Generally speaking, you need at least a 640 credit score in order to get a mortgage at all. You will get better rates and options if you have a better score, with those with a 740 or higher credit score receiving the best possible rates and opportunities.
Beyond your home purchase, as far as how much you can borrow and what rates you are offered for that mortgage, there are other areas and expenses that are affected by your credit score.
Those with higher credit scores will get more credit card offers. They will get offered better credit card rates and more appealing terms, including better rewards, waived or no annual fees, initial bonus offers and more. Customers with lower credit scores have less (or no) options for credit cards, leaving them with higher rates, less appealing trade offs and little leverage to dispute issues or take their business elsewhere, due to lack of opportunities for credit with other companies.
Car insurance companies pull credit reports to evaluate applicants and use the information to accept or deny applicants and to set premiums.
Homeowner’s insurance works the same way. The insurance agent will pull your credit and offer you terms and premiums based on the picture painted by your credit report.
Landlords pull credit to evaluate tenants and applicants may win or lose a unit based on this information.
Employers for some types of positions dealing with company money or assets may strongly consider the riskiness of a potential hire based on their creditworthiness.
* This article is based on limited personal knowledge.
Stay tuned for the 4th and final post in this series on Credit Scores, coming up in a couple days, titled “What you can do to improve your credit.”