Low Credit Score? It'll Cost You

September 22, 2015

More and more, credit bureau scores are being used to make decisions about you. Your score influences your loan interest rates, car insurance rates and may determine if you are approved for an apartment or even hired for a job. Clearly there is value in protecting that score, but how much is a great credit score really worth?

Buying a Vehicle

Are you shopping for a car? Auto loan rates are determined by your credit score. If you are shopping for a car and have budgeted $300 for a monthly payment:

A+ credit will qualify you for an annual percentage rate of around 1.99%. You can shop for a $17,000 car.

B credit will qualify you for around 6.24%. This means shopping for a $15,500 car.

D- credit will qualify you for 16.24% or higher. You can look at cars for $12,250 or less.

It’s not just the car payment that you need to consider. Auto insurance rates in Colorado are impacted by your credit score. Each insurance company uses the information differently, but, in general, they will have "premium" or "preferred" rate plans, "standard" rate plans and "high risk" plans. Along with your driving record and claim history, your credit score is a factor in deciding which plan you qualify for.

Vehicle maintenance is another expense to factor in. A $17,000 car may have lower mileage, or even remaining warranty or maintenance included. A $12,250 vehicle may be older or have more miles on it. This means higher maintenance costs.

Credit Cards

Having an A+ credit score will make you eligible for lower rates. Some cards will even offer a 0% introductory period to get your business. The lower your credit score, the higher the interest rate you’ll pay. With D- credit, you could pay as high as 29%. What does that really mean? Let’s say you’re shopping for a new amazing 59” HD TV. You’ve budgeted $2000 and you want to pay $100 per month.

A+ credit might charge it on a credit card at 5.9% interest. It will take 22 months to pay and cost $111 in interest.

B credit might use a card at 13.99% interest. It will take 23 months and cost $291

D- credit might qualify for a card that charges 27.99% interest. It will take 28 payments and cost $728 in interest.

Buying a Home

Are you looking for a new place to live? A good credit score is a huge advantage in purchasing a home. In Denver, this means spending about $300,000! The difference between A+ and B credit can mean an interest rate difference of 1.25%. It doesn’t sound like much, but after 20% down, a 30 year mortgage for $240,000 will translate to a cost savings of over $65,000 during the life of the loan for that A+ score. Someone with D- credit may not qualify for a home loan at all and may even have difficulty qualifying for an apartment.

Taking care of your credit score may not be something you’ve thought about; but, it is a valuable asset. Even comparing A+ to B credit, the savings is staggering. If your credit is less than perfect, don’t just throw in the towel. There are many ways to maintain and improve your score:

  • Pay your bills on time. Late payments and collections have a negative impact on your score.
  • Apply for new debt only as needed. Excessive credit inquiries may also affect your score.
  • Avoid using more than 30-50% of your available revolving credit. Keep balances on credit cards low.
  • Don’t close unused credit cards; it may actually lower your score as they are part of your available revolving credit.

This post was written by Chris Hardenberger, a branch manager at Westerra Credit Union. If you’d like to submit a guest post, email us at dimecontact@copera.org.