Credit Scores and Getting a Loan
Lenders are in the business of loaning money, but they are picky about who gets it. They will pull your credit history and look at your credit score before offering you a loan. It’s only fair—they want as little risk as possible (although the truth is they secretly like loans with some risk because they can charge a higher interest rate and line their pockets)
If you have excellent credit history, you’ll have a high score. If you’re on the high end of the credit score range, approximately 720 or better, you’ll be offered the lowest interest rates.
If you have a low credit score, you’ll be gouged at the highest interest rates. You may not get a loan at all.
Interest rates are affected by credit scores
To illustrate this, let’s check out current interest rates based on credit scores. We’ll pretend we need $20,000 for a new car and want a 5-year loan.
The difference between a 620 credit score and a 720 credit score saves more than 6% in interest rates. That’s approximately $3,500 more over the course of 5 years. Imagine the difference when applied to a 30-year mortgage! Having a higher credit score can save you tens of thousands of dollars on a home loan.
If you need a personal loan to consolidate debt, receiving the lowest interest rate is to your advantage. Some lenders offer credit to people with scores as low as 580. However, the interest rate on the loan will have an interest rate as high as 30%. Raising your credit score to 660 cuts that rate almost in half – reducing it to 17%. Meanwhile, borrowers with a credit score of 760 or higher are offered loans at an 8% interest rate. You can obviously pay down debt more quickly if you aren’t wasting money on interest.
Meanwhile, you’ve likely seen loans offered to people with no credit or bad credit. Those are usually payday or title loans with astonishingly high interest rates. No kidding – we’re talking over 400% interest rates! No one gets ahead utilizing those loans with those interest rates except the lenders.
Raising your score saves you money
With regards to a mortgage, raising your credit score just 20 points drops your interest rate and saves you thousands of dollars. Isn’t it worth raising your score now to save a lot of money in the future?
Give our experts at Honore’ Credit Consultants a call today so we can help position you to save thousands on your future home purchase! (844) 967-3724