Most of us know that the higher our credit score, the better. We may even know that we can save some money by maximizing our score. Of course, we also know that we should eat at least three to five servings of vegetables per day and that doing so may add years to our lives. But when was the last time you ate some Brussels sprouts?
- First, the basics. FICO credit scores range from 300 to 850, with 15% of the population scoring below 600, 27% scoring between 600 and 699, 18% scoring between 700 and 749, 27% scoring between 750 and 799, and just 13% achieving top scores of 800 or more.
- With mortgages, if your credit score is below 650, your interest rate will likely be at least 1% higher than that of someone with excellent credit. "According to MyFICO, a division of Fair Isaac
(NYSE:FIC), a consumer with a FICO score between 720 and 850 might get a 5.922% rate [this was several months ago] on a $200,000 30-year fixed mortgage rate. That would give him a payment of $1,189 a month and $228,072 in interest over the life of the loan. a consumer with a score between 560 and 619 might get an 8.531% rate, pay $1,542 per month and pay $355,200 in interest over the life of the loan. The difference in interest paid over the life of the loan between the first and last example is more than $127,000."
- Your credit score can also limit the degree to which you can refinance your mortgage. A low score can cost you tens of thousands of dollars in extra interest on a home equity loan.
- Car loans, too, are affected. If you're sporting a low credit score, you'll pay a higher interest rate -- perhaps as much as two percentage points higher -- and will fork over hundreds of dollars more, if not a thousand dollars or more.
If you're getting the idea that this credit score will affect most of your life, you're on the right wavelength. Insurance? "Someone with a credit score of approximately 650 or higher could receive a discount of anywhere from 'a few percent to 15 percent or even more' says Robert Hartwig, chief economist for the Insurance Information Institute." That means you might get to pay $150 less on your car insurance and your home insurance -- for a total of $300 per year and $7,500 over 25 years.
It doesn't stop there, either. These days, everyone is checking your credit -- from possible employers when you're bucking for a job to prospective landlords when you're seeking shelter. Pay your bills off on time and you might get a lot more out of life.
Learn more in our Credit Center, which features some surprisingly interesting info about the credit card industry. Being smart about credit can save you lots of money. You can read about all things credit-related on our Credit Cards and Consumer Debt discussion board.
Speaking of credit cards, check out our Fool credit card, which is so snazzy that it often serves as a conversation piece.
And finally, remember that credit cards are a big business and investors can profit from it. If the industry doesn't make you uneasy, check it out. Look into card-issuing companies such as Capital One
Bankrate is a former Rule Breakers recommendation. JP Morgan Chase is an Income Investor recommendation.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.