Excellent credit has saved me thousands of dollars
Every time I make a big purchase, I'm thankful I have excellent credit.
My FICO score has been at 800 or better since 2007, saving me lots of money and hassle.
Life is just plain cheaper and easier when your credit is good.
If you want a mortgage, an auto loan or a credit card, your FICO score is the key ingredient used to measure your creditworthiness.
Scores range from 300 to 850. In general, anything over 750 is considered good credit and anything in the upper 700s is considered excellent credit.
According to the most recent data from the Fair Isaac Corp., 18.4% of the 200 million people with credit scores have a FICO of 800 or more.
When I bought a new truck recently, I was preapproved within minutes at my bank for a 60-month auto loan at its lowest rate of 2.7%.
When I did some finagling with the dealer, I got an even lower rate of only 1.5% through its financing department.
There's a big difference in the interest rate someone with excellent credit earns versus someone with bad credit. And that difference in interest rates translates to thousands of dollars saved for the person with great credit.
What's in Your Score?
|Length of credit history||15%|
|New credit opened||10%|
|Types of credit used||10%|
Let's say you borrowed $15,000 with a 60-month auto loan. If you had a 750 FICO score and an interest rate of 2.7%, you'd pay only $1,052 in interest over the length of the loan.
According to MyFico.com, a person with a 700 FICO would pay about 4.8%.
That increases to 10.7% for a score in the 620-659 range and a whopping 15.5% if you have a score below 620.
At the 15.5% rate, you'd pay $6,600 in interest over the life of the loan, more than $5,000 more than the person with excellent credit.
There are all kinds of benefits to having a high credit score.
I also get good credit discounts on my auto and homeowners insurance that add up to at least a few hundred dollars per year in savings.
When my wife and I bought our house in 2007, and again when we refinanced a few years later, we got the lowest available rates due to our credit.
That alone might save us well into the five figures over the course of our mortgage.
Indeed, your credit score is a critical element of your financial life. It might be just as important as maintaining an emergency fund and saving for retirement.
And here's the great news: Your FICO score has nothing to do with how much you make or how much you have in the bank.
It's all about how you build and manage your credit. Our 7 smart moves to boost your credit score can give you some tips on how to improve yours.
Be sure to check your credit report once a year to check for errors on your file at any of the three reporting bureaus.
You can get your credit reports from each agency once a year for free at AnnualCreditReport.com.
Once every couple of years, or before a major purchase like a home or car, get your FICO score.
You can get it at Myfico.com, but you'll have to pay for it.