Credit Repair – Achieve A Better Financial Future With A Higher Credit Score
Is it really worthwhile to put an effort in repairing your credit record to achieve a higher credit score? How much more do you actually pay compared to people with good credit scores? Let us do a simple mathematical demonstration of nominal annual percentage rate, that is, the APR without the addition of participation fees, loan origination fees, monthly service charges, or late fees.
Based on data from the Fair Isaac Corp., creator of the FICO credit score, the national average on APRs for 3-year-term car loans for different credit score brackets are as follows*:
|
Credit Score* |
APR for 3-year loan* |
Loan Amount |
Monthly Payments |
Total Interest Payments in 3 Years |
|
500-589 |
15.03% |
$20,000 |
693.60 |
$4,969.80 |
|
590-619 |
13.95% |
$20,000 |
683.06 |
$4,590.36 |
|
620-659 |
10.62% |
$20,000 |
651.18 |
$3,442.68 |
|
660-689 |
8.75% |
$20,000 |
633.67 |
$2,812.32 |
|
690-above |
6.95% |
$20,000 |
617.08 |
$2,215.08 |
These simple calculations are based on nominal average APR, which does not include the varying additional fees of the effective APR used by lending institutions. You expect the total interest payments to go higher with longer loan durations.
Using the data on national APR averages, you stand to save around $2,500 for a credit score increase of around 100 points!
Of course car loans are not the only loans you take out. You have your mortgage and your credit cards, as well. For each of these other loans, you would stand to save thousands more of your money if you have a good credit score.
This being so, how do you achieve a better credit score? A credit score is the statistical measure used by lenders to decide on how risky it would be to lend to a prospective borrower. To offset high risk factors, lenders attach higher interest rates to the loan. If you consistently demonstrate on your credit records that you are a responsible borrower, then you gain a high credit score, signifying to the lenders that they take on minimal risks in investing money on you.
The key, then, is to always demonstrate responsible borrower behavior. Pay your bills on time. Avoid using up your entire credit limit every month as this suggests an inability to control spending. Review your credit reports at least once a year, and dispute any inaccurate information on them. A solid credit score is essential to a better financial future.
