Getting a good deal on a loan or credit card is highly dependent on the borrower’s credit rating. Surely it’s no secret.
What is surprising is how much money one can save by successfully raising their credit score into lenders’ preferred range. Don’t get me wrong, the sooner you do it, the better.
Example : A new study from Lending Tree estimates that you can save $50,000 by moving your credit score from the “fair” range to the “very good” range.
Credit reporting agencies consider the “fair” range to be within the FICO credit scoring range of 580 to 669. The “very good” range is between 740 and 749, Lending Tree reported.
That equates to a monthly saving of just over $250, a figure that would likely help American households battle inflation and high consumer goods prices. The total average monthly payments would be $3,029 with fair credit or $2,777 with very good credit, a difference of $252.
The study also noted that increasing your credit score has the biggest impact on mortgage costs. “An increase from fair to very good credit could result in mortgage savings of $40,041, which is 81% of the nearly $50,000,” the report said.
Consumers with very good credit could save $12,654 on personal loans, $36,498 on auto loans and $377,766 on mortgages if they get the lowest APRs instead of the highest, the report added. ‘study.
“There are very few things in life that cost more than having lousy credit,” said Matt Schulz, chief credit analyst at LendingTree. “A poor credit score could cost you thousands – or tens of thousands – of dollars over your lifetime in the form of higher interest rates and fees, and it could even prevent you from getting that full credit. ready.”
The good news?
Improving your credit score is important because a good credit score determines the price of your loans. So it’s important to keep your credit rating healthy to help you save money.
“Your credit score determines how much you end up paying for goods and services,” said Kristy Kim, chief executive of TomoCredit. “Increasing your credit score by 100 points can save you over $250,000 over your lifetime in fees and interest charges.”
Going from “bad” to “good” to “very good” with your credit score is going to take some time, so be diligent, but also be realistic.
“When trying to raise your credit score, it’s important to manage expectations, and ultimately how long it will take to fix bad credit depends on the state of your credit,” said the Dugan Brown founder, Wayne Brown.
The minor mistakes that pushed someone into bad credit will be easier to recover from than some of the major mistakes that can take years. That said, the effort justifies the means.
“Improving your credit from bad to good, from good to very good, and from very good to excellent is important to ensure you get the best interest rates on loans,” Brown noted.
To start this process, think strategically and be careful not to spend beyond your means.
“Consumers really have to be careful not to overdo themselves,” OppFi chief executive Todd Schwartz said.
Make plastic a priority
When exploring credit options, consumers should carefully compare and think through their choices.
For example, when looking for credit, people should consider options that accomplish three things, Schwartz advised.
· Enable them to repay their principal rather than rolling over their debt continuously.
· Focus on creditors who report payments on time to credit bureaus.
· Focus on creditors who don’t have any kind of charges like prepayment penalties.
“These important consumer protections will help ensure that consumers who need credit are able to pay off their debt and emerge in a better situation,” Schwartz noted.
Credit cards are one area of personal finance where debt consolidation can make a big difference in moving up the credit food chain.
“Frequency matters,” Kim told TheStreet. “It’s best to pay off your credit card balance as often as possible, regardless of the dollar amount. Paying down your balance helps you build your credit score and keep your credit utilization rates low, which helps improve your credit score. »
It is also essential to know how to manage your money and to have financial knowledge.
“This is especially the case during times of high inflation, when people need to understand the pros and cons of the credit card accounts they open, understand their credit score, and the market and the economy,” Kim added.