Posted on 2015-06-17 09:00:38
Most people who use credit cards know they have a credit score. But many don’t understand just how much a good credit score can help you save money.
Your credit score is calculated based on the information in your credit report. The main factors that affect your credit score are:
Payment History. More than anything else, lenders want to know how you pay your bills.
Available Credit. How maxed out are your credit card accounts?
Length of Credit History. Lenders view a longer credit history favorably.
Types of Credit Used. Most lenders view a proven track record with a variety of types of credit (mortgage, car loan, credit cards, etc.) as a good thing.
New Credit. Many credit scoring models consider how many applications you have made for new credits—whether or not they were approved. Although this usually has a minor impact on your credit score, it is something to think about when you fill out a credit application in return for 10% off your purchase.
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Credit scores are used to determine interest rates when you borrow money on everything from a credit card to a home mortgage. This is where your credit score can make a huge difference – not only in monthly payments, but also in the total amount you repay over the life of a loan.
Consider two people buying a home with a $200,000 30-year fixed-rate mortgage. Based on credit scores, one has an excellent credit score and qualifies for a 3.697% interest rate with monthly payments of $920. The other has a credit score that barely qualifies and gets a rate of 5.269% with monthly payments of $1,107. Over the course of 30 years, one pays $131,282 and the other pays $198,434 in interest.
Your credit score can also affect the interest rate on your credit card accounts. If you aren’t paying your balances in full each month, this, too, can keep money out of your own wallet.
The bottom line is a good credit score can save you each and every month. If this is an eye opener for you and you are lamenting that you have a low credit score, never underestimate the power of time and good credit habits for changing that low credit score to a high credit score.
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