Hunting for the Best Mortgage Rate? Raising Your Credit Score WILL Save You Money!

When you’re shopping for a low mortgage interest rate, keep in mind that widely advertised rates for home loans are usually designed for home buyers with “very good” to”excellent” credit scores.

— Understanding Your Credit Score —

That’s not meant to imply that you can’t get a mortgage if you have a “fair” credit rating, only that your interest rate will likely be a bit higher, and as a result the amount that you are qualified to borrow could be somewhat lower.

Your credit score can impact everything from insurance rates to employment prospects so it’s never a bad thing to work on increasing your FICO credit score as much as possible. Fortunately there are steps you can and should take to do this yourself.

In an older post and video, we detailed actions you can take to start repairing your own credit. Check out the post below. Note: Beware the ‘Credit Repair’ racket. These companies are at best, taking advantage, and at worst, completely fraudulent. In either case they are expensive. There is no “quick fix” for credit and the best person to repair your credit is YOU.

— Improving Your Credit, How and Why —

Raising a ‘Fair’ Credit Score to ‘Very Good’ Could Save Over $45,000

using laptop to see graph of credit score - Raising your credit score, fixing your credit, good credit, credit monitoring - Bill Salvatore, Arizona Elite Properties 602-999-0952

photo courtesy of RIS media

A good credit score benefits consumers in many ways. In fact, it can even save you hard-earned cash. According to a recent study from LendingTree®, raising a ‘fair’ credit score to ‘very good’ could in fact save consumers more than $45,000.

To arrive at this figure, LendingTree researchers analyzed anonymized loan request and average loan balance data from LendingTree users to see how a lower credit score can increase borrowing costs for the average American with a fair versus excellent credit score. The analysts compared the range of credit scores generally considered “fair” (580 to 669) to the range generally considered “very good” (740 to 799) to measure the difference in costs of the life of loans using the average balances for five different kinds of loans (mortgage, student loan, auto loan, personal loan and credit card).

The results revealed the following:

Raising a credit score from “fair” (580-669) to “very good” (740-799) saves $45,283 on a common array of debts.
Mortgage costs account for 63 percent of the savings ($29,106 in savings with very good credit score versus fair).
Paying the minimum balance on an average credit card debt represents the second largest difference, with about $5,600 in savings for a very good versus a fair score. That amounts to someone with fair credit paying 248 percent more in interest than someone with good credit.
Personal loan borrowers can expect to pay 271 percent more interest on the same loan if they have a fair credit score instead of a very good one, and auto loan borrowers can expect to pay 311 percent more in interest.

The Most Common Debts
Everyone’s debt profile is different, but it’s typical for an American consumer to buy a condo or house (average mortgage size: $234,437), purchase a reliable car (average loan size: $21,778), take out a personal loan to consolidate old debt (average loan size: $11,258), rack up charges on a credit card (average debt size: $5,265) and pay off some student loans (average debt size: $37,525). That adds up to $310,263 for a lifetime of common American debts. A few things about that figure:

While the average American may not have $310,263 of debt all at once, it’s still common for borrowers to overlap some or all of these debts at the same time or in close sequence.
It’s likely a low estimate of lifetime American debt, because consumers often have more than one loan of each type throughout their lives.

Still, $310,263 is a lot of money, especially when considering how much all of that debt costs in interest and fees. Assuming a borrower pays every one of these bills on time, this range of debt will cost someone with a very good credit score (between 740 and 799) $212,498 in interest. With a fair credit score (between 580 and 669), a borrower is still likely to qualify for similar loan amounts, but can expect to pay around $257,781 in interest and fees, a difference of $45,283.

To put that in perspective, the median earnings for Americans in 2016 was $31,334, before taxes. It would take most Americans well over a year to collect $45,283 of interest via take-home pay—money they would never have to pay if they had good credit.

Even with only one of these loans, the borrower would still see significant savings with a very good credit score. Take a mortgage for example. Assuming every other factor is equal, someone with a very good credit score would have a monthly mortgage payment that’s $81 less than someone with a fair credit score. The person with very good credit could invest that money, use it to pay down debts faster or to increase the down payments on future loans, which would exponentially increase the value of those savings over that same 30-year period.

The solution? Credit monitoring, says LendingTree. By keeping a consistent eye on your credit score, consumers can see changes to their score, catch errors and take immediate steps to improve their score.

Author’s Note: Credit monitoring can easily and efficiently be done by you. Consumers are allowed one free credit report every 12 months from each of the three credit reporting agencies (Experian, Equifax and Transunion) meaning, if you request your free credit report from only one reporting agency at a time, you can receive a free credit report every 4 months.

When you receive your report be sure to check:

Your address is current
All open account balances are correct and complete
All open accounts have logged payments accurately
Ensure that no accounts appear on your report that do not belong to you
All closed accounts have been updated to reflect the closed status and balances are $0
Information on any judgements or collections is factual
Data relating to financial events (bankruptcy, foreclosure, short sale etc.) is up to date

Report immediately, any misinformation you find on your report. Contact the reporting agency with documented proof of any errors.

Equifax:1-800-685-1111; equifax.com
Experian: 1-888-397-3742; experian.com
TransUnion: 1-800-916-8800; transunion.com

A warning from the Federal Trade Commission website – “Only one website is authorized to fill orders for the free annual credit report you are entitled to under law — www.annualcreditreport.com”. Other websites that claim to offer “free credit reports,” “free credit scores,” or “free credit monitoring” are not part of the legally mandated free annual credit report program. In some cases, the “free” product comes with strings attached. For example, some sites sign you up for a supposedly “free” service that converts to one you have to pay for after a trial period. If you don’t cancel during the trial period, you may be unwittingly agreeing to let the company start charging fees to your credit card. Some “imposter” sites use terms like “free report” in their names; others have URLs that purposely misspell annualcreditreport.com in the hope that you will mistype the name of the official site. Some of these “imposter” sites direct you to other sites that try to sell you something or collect your personal information. Annualcreditreport.com and the nationwide credit reporting companies will not send you an email asking for your personal information. If you get an email, see a pop-up ad, or get a phone call from someone claiming to be from annualcreditreport.com or any of the three nationwide credit reporting companies, do not reply or click on any link in the message. It’s probably a scam. Forward any such email to the FTC at spam@uce.gov.

For more information, Call or Text: 602-999-0952
eMail: golfarizona@cox.net
Bill Salvatore / Arizona Elite Properties
Your Valley Property Team
Residential Sales, Marketing, and Property Management

Founder: AZVHV Arizona Veterans Helping Veterans
Member: Heroes Home Advantage
Recipient: East Valley Tribune’s: Best Gilbert Realtor

While you’re deciding if it’s time to make a move, let us help with our Moving On Advantage Discount! When you list your home with us, and buy another, we’ll contribute $2,000 toward your closing costs!

Check out our Moving On Advantage discount then give us a call!

There are still down payment assistance programs available in Maricopa and Pinal Counties.
Call us for details: 602-999-0952

We have options to help with your closing costs. See the links below or feel free to call or email
for additional information: 602-999-0952 / golfarizona@cox.net