Everytime I turn on TV or the radio, I hear commercials about credit scores, I hear about credit report monitoring and identity theft protection insurance. Yes, we all know that in order to get a mortgage, whether its a FHA mortgage, a USDA mortgage, or even a VA Mortgage, you have to have decent credit. Heck, even to get a car loan you need to have some decent credit… but what is the cost of bad credit vs. average credit? How much can you save by having good credit?
Lets take a look at the same scenario for 3 hypothetical families. Each family has 2 cars with a 20,ooo auto loan outstanding, the families all live in the same neighborhood, 2 of them own their homes, the third (the one with bad credit) is renting. For the purposes of this example, none of the families have any credit card debts or other loans, and they are all in the 25% tax bracket.
Family A, with an 800 credit score, has total payments of $2,831 per month (that includes both cars and all the mortgage related expenses–this includes taxes and insurance).
Family B, with a credit score of 660, has total monthly payments of $3,128. Thats almost $300 a month more than family A pays. Think of the vacation that Family A can take with that… or if they invest the $300 a month, how great would their credit score be?
Family C, with a 560 credit score could barely get their car loans. They are renting, for about $3,200 a month. They don’t even get a tax break for that. Their net payments each month are $4,183… over $1,300 a month greater than Family A.
None of this takes into consideration the fact that companies generally run credit reports prior to hiring or promoting employees… Employee A will definitely have more negotiating power, and more flexibility when it comes time for promotions or job changes, Employee B will do well also. Employee C on the other hand, will have significant difficulties. Heck, employee C may not even be able to get a professional license or be bond-able with a score that low.
To see the example, click here.
If someone you know has questions about improving their credit score, feel free to have them call me at 281.841.1723. If yours is already great, and your ready to buy or refinance your home, I am here to help as well.