Importance of a Good Credit Score

It is well known that your credit score affects your financial life to the maximum. Loans, mortgages, jobs and every day purchasing depends on your credit score. Here is a brief idea about how important a good credit score is.

When a person with a credit score between 720 and 850 makes a loan, he would be required to pay an interest rate of 5.922% on a $200,000 30-year fixed mortgage rate. Another person with a credit score between 675 and 699 would be required to pay an interest of 6.584% on the same loan that is $31002 more than the person with a score between 720 and 850. A consumer with a FICO score between 620 and 674 might get a 7.734% rate. This means he would be paying $55,947 more than the middle-score borrower.

When talking about a home-equity loan, a person with a credit score between 720 and 850 might be pay an interest of $190 per month on a $20,000 loan at an interest rate of 7.911%. However a person with a score between 640 and 659 would be required to pay $209 per month on the same amount at 9.486% rate of interest.

Making auto loans would also require a person with a bad credit to pay exorbitant interest rates. If a person with a credit score between 720 and 850 makes an auto loan of $20,000, then he would be required to pay $472 a month at an interest rate of 6.282%. On the other hand someone with a credit score between 660 and 689 will have to pay $496 a month with an interest of 8.844%.

Similarly insurance premiums for those with an excellent credit score are low as compared to someone with an average or bad credit rating. A person with a good credit score (over 650) may get discounts up to 15% or more. It has been noticed that people with a low credit score make more claims than those with a good credit score. This is because people with credit problems are more likely to defer the maintenance of their properties like cars and houses. So the insurance companies prefer those with a good credit score and allow them lower premiums.

A good credit score is of utmost importance. It helps you make easy loans and helps you pay lower interest rates on the various loans you make. If you have not been working on improving your credit score, it might well prove to be disastrous for you in the long run.