What’s a good credit score and why does it even matter?
Before you get bored by the topic allow me to tell you why you should give a damn. Your credit score is one of the most important numbers that you’re assigned. I wanted to tell you why you should give a damn before we get into discussing what a good credit score is.
Why does a good credit score matter? One word: SAVINGS.
Your credit score is responsible for determining what interest rate you get charged for a loan (typically a car loan or a home mortgage). The higher your credit score the less risky that you are to lenders. In return you get charged a lower interest rate and you get to keep more cash in your pocket. You get more cash to do whatever else you want to do with your money.
How can a good credit score save you money?
As mentioned above, a good credit score will get you a lower interest rate. This lowest interest rate means that you’ll spend less money on interest over the life of a car loan and most importantly your home mortgage
I wanted to go over an example of how you can save tons of money with a good credit score from the popular book, I Will Teach You To Be Rich. This example should open your eyes up.
Let’s says that you have a $200,000 30-year mortgage.
On a FICO credit score between 760-850 (best possible), your APR will be 4.384%, and in total with interest included you’ll pay $359,867.
On a FICO credit score between 620-639 (worst possible), your APR will be 5.973%, and in total with interest included you’ll pay $430,427.
That’s a difference of $70,560.
I’m not sure about you but that’s a serious amount of moolah to me.
You can be delusional and claim that you won’t buy a home until you have the money saved up for it in cash. Unfortunately this rarely ever happens these days and I want to be as a realistic as possible with you. A good credit score will save you tens of thousands of dollars. You don’t need to worry about staying in on a Friday night.
What is a good credit score number?
Generally speaking any number over 700 to 759 is good. You’re not risky to lenders and you’ll get approved for most loans pretty easily. This usually takes a few years to build up.
If you want excellent credit you’re going to want to hit between 760 and 850. This will obviously take many years to reach. Once you reach this level you shouldn’t have any problems with interest rates and getting approved for loans.
What’s a good credit score also depends on your situation. As you progress through your career and make wise moves your credit score will change. As a recent college graduate you shouldn’t be down on yourself if your credit isn’t where it should be. The good news is that it’s very possible to improve your credit score. It shouldn’t even take that long.
You should strive to hit the highest credit score possible. Yes I realize that it’s easier said than done. Don’t worry I’m here to help you. I spent all summer researching this topic so that I can make it easy for you to conquer your credit.
Is your credit score all that matters for borrowing money?
Not exactly. Lenders will also consider your age and your salary. If you’re older and earning a decent living, a good credit score will just be icing on the cake.
What’s the difference between a credit score and a credit report?
A credit report contains all of your important information. This report gives potential lenders the information that they need to know about you and your credit history. The credit report contains your payment history, accounts that you have open, and a general overview of your credit situation.
Your credit score is the number that’s derived from your credit report.
How can you check your credit score?
Once a year you can get your free credit report from www.annualcreditreport.com. When it comes to your credit score you might have to pay a few bucks to check it online if you really want to know where you stand.
Equifax allows you to check your credit score from all 3 credit bureaus. This costs a few bucks but it shows you exactly where you can stand. Once you see how your credit is doing you can focus on credit repair (to be covered soon).
For a lower price you can check out your credit score from Equifax. It’s important that you know what your credit score is so that you can figure out whether or not you’re on the right track.
You can also pick up your Transunion credit score for free from Credit Karma.
What can you do to build your credit and save tons of money in your 20s?
Long story short, YOU can save LOTS of money with a good credit score. This is more money in your pocket towards wild trips down south, more nights out with your friends, and the ability to grab your daily coffee.