Unfortunately, the difference between great and bad credit could cost you nearly $400,000 over your lifetime, according to a recent study. This effect is much less exaggerated between outstanding and fair credit ratings, but even then, interest payments could cost you tens of thousands of dollars. Here’s a closer look at how much credit scores can will cost you throughout your life.
Mortgage interest can eat up a decade of your income
- Less than 620: $486,040
- 620–639: $158,512
- 640–659: $133,828
- 660–679: $114,803
- 680–699: $105,291
- 700–759: $98,045
- 760–850: $88,388
As Libra points out, the interest due for the lowest credit scores corresponds to 9.4 years of wages for the median full-time worker. Why is this effect so exaggerated? Well, since borrowers with credit scores below 620 cannot qualify for conventional loans, they are forced to take subprime mortgages which have much higher interest rates, which cost them a lot more money in the long run. This is why it is important to have a credit score above 620, then apply for a mortgage.
Interest on subprime auto loans can cost you a year of income
The study also looked at the lifetime cost of interest on car loans (based on the average prices of two used cars and four new cars over a lifetime and the respective interest rates). The breakdown by FICO credit score is as follows:
- 300–500: $87,523
- 501–600: $65,549
- 601–660: $39,031
- 661–780: $20,937
- 781–850: $14,545
What’s interesting here is that even with a decent credit score, a 100 point difference in your credit score will result in interest payments that are roughly equivalent to the annual take home pay from a full-time job. partiel.
Credit cards are a little harder to measure
Credit cards are different because they are revolving creditsdo not to installhome loans as you see with mortgages or auto financing. For this reason, it is not easy to measure lifetime average interest based on a borrower’s credit score. There are other reasons for this, too: borrowers generally need credit scores above 670 to qualify for a credit card, and many borrowers make payments on time before interest kicks in. . By CNBCthe average lifetime interest on credit cards is $9,624.24.
How to build your credit score
Even borrowers with the worst credit scores can slowly rebuild it a few years from nowbut he requires good credit behavior at the time. If your credit score is at its lowest, check out this post from Lifehacker which covers your options for building a good credit history from scratch.