Question: How Much Of An Impact Does Your Credit Score Have On Your Interest Rate?
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 FICO.com site:
Here are some questions that you can ask:
- 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).
- Calculate how much a consumer would pay if their credit score was 760 ($650 X 360 payments = $234,000)
- 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'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.