Why You Need Good Credit

There is a BIG difference between bad and good creditIt makes sense to want a good credit score, but you never truly realize why until the rubber hits the road. Like when you go to the Toyota dealer wanting to buy a new Camry.

Camry is traditionally the best-selling car in the U.S., with a manufacturer’s suggested retail price of $23,070 for the LE model. You want that car, but you can’t put any money down and want a 48-month loan.

The salesperson takes that information and then crunches the most important number – your credit score. It’s 742, which qualifies for a 4.0 % interest rate. Your monthly payment will be $520.90.

Difference Between a Good and Bad Credit Score

If your score had been below 630, you might have been stuck with a 12.9% interest rate and your monthly payment would have been $617.77.

That’s a $4,649.76 difference over the life of the loan, or 4,649.76 reasons you should have good credit. There are plenty more.

Like if you move and call utility companies for new service. With a good credit score, the company is likely to waive the security deposit and flip the switch for power. A bad credit score means you’ll need anywhere from $100 to $250 deposit to get the lights and air conditioner running.

An excellent score qualifies you for credit cards with the most attractive rates, rewards points, gifts and cash-back deals. It gives you bargaining power, like when you are looking to rent a vacation home. The rental agent may waive fees or give you a lower interest rate. The same goes when you apply for a personal loan from a bank.

Does Your Credit Score Impact Your Life?

Understand your credit score, how it impacts your life and what you can do to help raise it.

Your Credit Score and Housing

When it comes long-term housing, a good credit score is crucial. Apartments often require larger deposits for renters with poor credit. If your score is too low, you might not even qualify for a lease.

As for buying a house, the savings can be astronomical. Say you want to buy a $250,000 house and put 20 percent down on a 30-year fixed-rate mortgage. Based on recent interest rates, buyers with the best credit scores would get a 3.637 % interest rate. Buyers with poor credit would qualify for a 4.023 % interest rate.

What those dry numbers mean in real terms is a premium customer would write a check for $1,140.00 every month for the next 30 years. A buyer with bad credit would write a check for $1,194.00.

That difference — $54 a month – would buy you 13 1/2 Big Macs every month. The savings over the life of the loan would be $19,440, which would buy far more Big Macs than we have the stomach to calculate.

Your Credit Score and Employment

A bad credit score could keep you from getting a job, especially in the financial industry. Companies look for dependable, trustworthy employees. Employers might view a poor credit score as a warning that indicates irresponsibility.

Employers must get the applicant’s permission to check the score. You don’t have to grant it, but not doing so probably won’t help your chances of getting hired.

Your Credit Score and Car Insurance

And did you know that with some insurance companies, you’re better off with a DUI than a bad credit score?

A Consumer Report investigation in 2015 analyzed more than two billion price quotes from 700 companies and among their startling discoveries was the fact that credit scores had a profound impact on car insurance rates.

“Single drivers who had merely good scores paid $68 to $526 more per year, on average, than similar drivers with the best scores, depending on the state they called home,” the report stated. The nationwide average was a $214 difference between drivers with good scores and the best scores.

As for the DUIs, a driver in Florida with a poor credit score, but clean driving record would pay $1,552 more for auto insurance than a driver with an excellent credit score, but a drunk driving conviction on his record. So in some instances, it’s worse to have poor credit than to drive drunk.

If there were a breathalyzer test for credit, would you be in trouble? Here is the FICO scale:

720 to 850 – Excellent

690 to 719 – Good

630 to 689 – Fair

300 to 629 – Bad

Your score is determined by the information in your credit report. The average score in the U.S. is 695, and percentage of the population drops as the categories get lower. In other words, most of the country – 54.7% — are in the good-to-excellent category.

800 to 850 – 19.9 %

750 to 799 – 18.2 %

700-749 – 16.6 %

650-699 – 13.0 %

600-649 – 10.3 %

550-599 – 9.4 %

500-549 – 7.6 %

300-499 – 4.9 %

How To Access Your Credit Report

You can get a free copy of your credit report once a year from each of the three major credit reporting agencies – Equifax, Experian and TransUnion. The website to request a report is AnnualCreditReport.com, or call 1-877-322-8228. You also are entitled to see your credit report within 60 days of being denied credit.

The good news is credit scores improve with proper credit behavior If you make on-time bill payments every month, your score will reflect your responsible behavior.

If you need any motivation, just remember all those monthly checks, security deposits and Big Macs. When it comes to your credit score, the rubber is always hitting the road.

If you’re missing payments either because you have too many credit card bills or you can’t afford the minimums, you’re damaging your credit score. Free credit counseling can help you review your budget and find a debt relief solution that works for you, based on your income, expenses and assets.

SOURCES:

(Ballard, R.) (2015, Mar. 31). Typical Interest Rates for Good and Bad Credit. Retrieved from http://www.carsdirect.com/auto-loans/typical-interest-rates-for-good-and-bad-credit

(NA) (ND). The Truth About Car Insurance. Retrieved from http://www.consumerreports.org/cro/car-insurance/auto-insurance-special-report/index.htm

(NA). (ND). U.S. Credit Quality Continues to Climb – But Will It Level Off? Retrieved from http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-continues-climb-will-level/