Credit Scores and Saving Money

Below are four tables that give examples of exactly how much money you could save, depending on the mix of credit you have now, and/or will have in the future.

All lenders are different, with different qualifications and rates. However, through a compilation of multiple resources, this table is representative of the various industries and how they use credit scores to adjust the interest rate (and fees) to their customers. Using credit scores to change the rates is called risk based pricing. Please understand this concept, because most industries have now gone to risk based pricing, and the ones that have not switched over to risk based pricing yet probably will do so in the near future.

I will add a personal example that illustrates the importance of having high credit scores. I was a co-signer on multiple student loans for one of my five daughters. Some of these loans were then consolidated, and the interest rate for this very sizable loan was going to be based on my credit. As with most lenders, they went off my middle score from the three major bureaus. Their threshold for the best rate was a middle score of 740. I made it with all of one point to spare at the time. By me having a middle score above 740, this will save my daughter literally thousands of dollars over the many years it will take her to pay back these loans. Credit scores do matter, and the bigger the debt, the more it matters.

How a higher credit score could save you money on a
$150,000, 30 year fixed mortgage.

Credit Score	APR %	Monthly Payments	Total interest paid	The savings you would realize if you had a credit score of over 720 as opposed to a credit score below 620: $100,069.00
720-850	5.785	879	166,331
700-719	5.910	891	170,639
675-699	6.447	943	189,437
620-674	7.597	1,059	231,169
560-619	8.531	1,157	266,400

How a higher credit score could save you money your credit card debt of
$10,000, making the minimum payment of 3% every month.

Credit Score	APR %	Total Paid Interest	Years Needed to Retire Debt	The savings you would realize if you had a credit score of over 750 as opposed to a credit score below 600: $19,677 Extra years it would take to retire this $10,000 debt, with the same scores above: 18.67
750-850	6.75	2,248	13.25
700-749	9.99	3,737	14.67
650-699	12.99	5,487	16.42
600-649	18.99	10,822	21.50
550-599	24.99	21,925	31.92

How a higher credit score could save you money on a
60 month, $25,000 auto loan.

Credit Score	APR %	Monthly Payments	Total interest paid	The savings you would realize if you had a credit score of over 720 as opposed to a credit score below 590: $6,534
720-850	5.413	477	3,592
690-719	6.213	486	4,148
660-689	8.296	510	5,628
625-659	10.595	539	7,311
590-624	14.287	585	10,126

Example of what you would pay for insurance (car and homeowners) if your
base rate is $2,000 a year. Insurance uses discounts for good scores.

Insurance Bureau Score	Discount off Base Rate (%)	Monthly Payment	Yearly Premium	The savings you would realize if you had a credit score of over 750 as opposed to a credit score below 550: $600  1 year $12,000  20 years
800 up	38	103.33	1,240
750-799	30	116.67	1,400
700-749	25	125.00	1,500
650-699	19	135.00	1,620
600-649	13	145.00	1,740
550-599	9	151.67	1,820
549 down	0	166.67	2,000

Insurance rates and credit scores

Irrespective of how safe a driver you are, chances are your auto insurance premiums are now being determined by not only looking at your driving record, but also your credit scores. The insurance industry has their own credit models that they use to determine the risk of insuring you. They have found a correlation between credit scores and insurance claims ג€“ the higher the score, the less likely they will have to pay a claim, and the lower the score the more likely they will have to pay a claim.

This is also now true of homeownerג€™s insurance, and I would bet renterג€™s insurance. They use discounts for good scores, rather than higher rates for bad scores, but the end result is just the same ג€“ you pay more if you have less than excellent credit.