Life is full of ups and downs but While having a good credit score can't lessen the impact of every difficulty, it certainly can help make reaching your financial goals easier.
So how much does bad credit cost you? Bad credit can literally cost you thousands of dollars over the long-term in higher interest charges, insurance premiums, and lost job opportunities. Here are several other examples of how a good credit score can help you reach your financial life's goals.
Buying a Car
With the cost of a typical 4 door mid-sized car approaching $25,000, many buyers are opting for a longer auto loan term in order to make the monthly payments more affordable. Qualifying for an auto loan will depend on your income and your credit score. The better your credit score, the better financing terms you will qualify for and the more money you will save.
I just purchased a new car and because of my excellent credit, I qualified for a special rate of 2.9%. That is about half the going rate of 5.9% on a 36 month auto loan.
If you're going to buy a car you will obviously need to insure it and where you live, what kind of vehicle you drive, and your credit score will determine what your insurance premiums will be. According to Zebra's The State of Auto Insurance Report for 2016, a person with a poor credit rating (524 or lower) will pay $2,411 while those with excellent credit scores(823 and above) pay $1,130 in auto insurance premiums each year. That's a savings of $1,281 each year!
Buying or Renting a Home
Renting a home in many locations has become more expensive than a mortgage . One of the items any mortgage broker or apartment manager will do is to pull a credit report. A good credit score can often save you from a hefty security deposit and can save you tens of thousands of dollars in interest over the life of a mortgage. For example, a credit score of 760 or above will qualify you for the best mortgage rates. Having a credit score 100 points lower will cost you at least .5% on your interest rate which translates to tens of thousands of dollars over the life of a 30 year fixed rate mortgage. For example, adding .5% on a $200,000 30 year 4% fixed rate mortgage would cost you an additional $21,500 in interest and $58 to the monthly payment over the life of the loan.
Starting a Family
Starting a family is a big decision. And as a father to two grown children, I can honestly say it is one of the most expensive decisions you will ever make. And while I would never dream of putting a price tag on the importance of family, there are obviously many ways to save money while raising a family.
From buying a home, to making room in the budget for all of the expenses that accompany combining households or welcoming a new addition to the family, a good credit score can ease the financial burden. Not sure where to start? Scoreshuttle is a DIY credit enhancing software that can provide you with effective tools to improve your credit score. The key is to monitor your credit report closely and use credit wisely.
When we were expecting out first child, we were shocked to discover how expensive baby items were. We purchased a set of furniture for the nursery and were able to qualify for special financing offer that saved us some money due to our excellent credit. The savings weren't huge but they were definitely a welcome source of funds to help offset the cost of diapers, baby formula, baby clothes, diaper bag, stroller, car seat, you get the picture! The point is, a good credit score allowed us to finance the larger purchases at a lower cost.
Retirement is just around the corner for me and I can't be more excited about the prospect of having more time to do the things that bring me joy. Because I have lived a frugal lifestyle and have made saving and investing a top priority in my life I am fortunate to be able to retire early. I have also been responsible with my use of credit and have enjoyed an excellent credit rating that has saved me thousands of dollars over my lifetime.
Don't believe me that a credit score could help you retire earlier than planned? Remember the savings we talked about from lower insurance premiums and a lower interest rate on your mortgage due to having a better credit score? Well if you invested those monthly savings of $165 each month earning an 8% return for 30 years you would have $247,560 saved for retirement.
As you can see, improving your credit score can lower the cost of certain expenses and free up the money to fund a more secure financial future.