Do you know the number one reason why it’s good to have a high credit score? Here’s a hint: it’s not about bragging rights or feeling superior, although some folks might view it that way. No, the number one reason you want to have a good credit score is that it makes sense, dollars and cents. A high score saves you money! 
<ul><li>We often get calls from folks who are concerned about their credit scores. Other times we hear from people financing a car and they want to know if they’ve been offered a good interest rate. What they may not realize is how closely those two things are related. When a lender approves you for a loan, the interest rate they offer isn’t something they just picked out of a hat. </li><li>The first thing they do is check your credit score, often from more than one source. The higher your score, the lower the interest rate they’ll offer you. And over the term of a car loan, a lower rate will add up to big bucks in your pocket. But that still leaves the question, “What exactly is a good credit score?” FICO is just one company providing credit scores to lenders and consumers; however, their scoring range is typical of most. Your FICO score will always be a single number between 300 and 850.</li><li>Keep in mind what that number really means. It’s based on your credit reports which show your past performance in handling credit. That is, how well you’ve kept your word to pay back money that you owe on time. Since lenders don’t know you personally, they need a tool like a credit score to determine the risk factor in lending you money. And while the “good” range (which will get you a decent interest rate) is anything from 670 to 740. Some lenders may give you a car loan with a score as low as 450. Why would they do that? It’s not because they like you.</li><li>Since a higher percentage of folks with credit scores that low will likely default on their loans, lenders need a way to make up for those losses. They do that by charging higher interest rates to folks with lower scores. So, with a credit score of 450 to 500, you’ll be offered the very highest rates. The higher your credit score, the lower your interest rate and the lower your monthly payment. How much lower? Consumer expert Clark Howard ran some numbers on an all-too-typical 48-month new car loan for $25,000 and the results are eye-opening.</li><li>Keep in mind that it’s always better to pay cash for a car. But if you have to borrow, keep saving until you can pay cash for the next purchase. So let’s say you have a FICO score in the top range, from 720 to 850. And let’s say that gets you an interest rate of 3.9%. Your monthly payment would be $560. And over the life of the loan you’d pay a total of just over $2,000 in interest.</li><li>If you’re worried that your credit score is too low, the process for raising it is relatively simple. It starts with checking your credit reports for errors that might be dragging down your score. Order free credit reports at <a href="http://AnnualCreditReport.com">AnnualCreditReport.com</a> and dispute any errors you find. If you have balances in arrears, bring them all up to date, then commit to making all of your payments on time. </li><li>Finally, work to pay off as much debt as you can. Ideally, you don’t want any balance on a credit card. But never have a balance of more than 30% of your available credit as that will drag down your credit score. If you start doing all of those things, your score will gradually begin to rise. It’ll take time, but now that you know how much money a good credit score will save you, you’ve got plenty of incentive to get started.</li><li>If you need help, sign up with a volunteer coach at <a href="http://MoneyWise.org">MoneyWise.org</a>. We can help you get on a budget and set up a plan to get the process started.</li><li>Remember: a good credit score is really just the result of doing what you’ve promised, to pay back what you owe. As followers of Christ, that should always be our priority.</li></ul>On this program we also answer your questions:
<ul><li>What’s the best way to pay off early a fixed, 30-year mortgage?</li><li>I have a 401(k) from work. Also, my wife has a 403(b). We’re both retired and are approaching age 70. I’m assuming that we can set up a direct transfer of money from each account into our savings accounts, for example, since we don’t need the money. But when we do that and when we reach 72 and have to take the RMDs, will that go over and above what we’re transferring out or will this take care of that?</li><li>Other than my monthly deposits into my IRA of $500 (earning 4%)—and that’s limited to $7,000 a year worth of deposits—where else can I put additional money for retirement?</li></ul>Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to <a href="mailto:questions@moneywise.org">Questions@MoneyWise.org</a>. Also, visit our website at <a href="http://moneywise.org/">MoneyWise.org</a> where you can connect with a MoneyWise Coach, purchase books, and even download free, helpful resources like the free MoneyWise app. Like and Follow us on Facebook at MoneyWise Media for videos and the very latest discussion! Remember that it’s your prayerful and financial support that keeps MoneyWise on the air. Help us continue this outreach by clicking the Donate tab on our website or in our app.

FaithFi

Faith & Finance is a daily radio ministry hosted by Rob West. The program offers a practical, biblical and good-natured approach to managing your time, talents and resources.

Faith & Finance with Rob West

Do you know the number one reason why it’s good to have a high credit score?  A good credit score is that it makes sense, dollars and cents. A high score saves you money!

Credit Scores and Car Loans

FaithFi | Jul 13, 2021

Show Notes

Where Faith Meets Finance

You May Also Like