Question: How Much Of An Impact Does Your Credit Score Have On Your Interest Rate?

Feb 03, 2015
Credit Scores, Mortgages, Activity, Question of the Day, Research, Current Events, Chart of the Week

I often find myself saying in class something along the lines of “You will pay more for loans (if you can even get them) if you have a low credit score.  This mini-activity allows students to see ACTUAL data to calculate exactly how much more you would pay on a 30-year mortgage if you have a low credit score.

I found this chart on the site:

Screen shot 2015-02-03 at 12.23.25 PM

Here are some questions that you can ask:

  1. Calculate how much a consumer would pay for the 30 year home mortgage if their credit score was 639 ($787 X 360 payments = $283,320).
  2. Calculate how much a consumer would pay if their credit score was 760 ($650 X 360 payments = $234,000)
  3. So, what is the difference between having a low credit score and having a high credit score in this example?  Almost $50,000!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.