What's your credit score? If you don't know, you're in the minority – according to the Chase Slate 2018 Credit Outlook.
The 2018 survey found that 77% of Americans know their credit score, an increase of ten percentage points in just one year. With that knowledge comes the desire to improve. Four out of five respondents are taking steps to improve their credit score in 2018, up from 72% in 2017. Are you?
Americans overwhelmingly understand the importance of good credit. Approximately 90% of respondents believe that access to credit is important. Similar percentages of respondents understand the importance of credit when it comes to purchasing a home or a car, applying for a loan or a credit card, or even starting a small business.
A poorer credit score can cost many thousands of dollars over a lifetime due to higher interest rates. You can negate this effect on a credit card by only charging what you can afford to pay off at the end of the month – but for installment loans like mortgages and auto loans, interest can't be avoided.
How much can a poor credit score cost you? Find out with Credit.com's lifetime cost of debt calculator that allows you to enter different debt values and slide your credit rating to see the effect. Consider the following example.
With a $500,000 mortgage (thirty-year fixed-rate loan), a financed $20,000 auto purchase every seven years, and a $2,500 credit card balance ($75 monthly payment with no new charges), a person with fair credit (credit score of 620-679) would pay over $436,000 in interest charges over their lifetime. Good credit (680-739) knocks that value down to just below $375,000, and excellent credit drops the total to $344,000.
Let that sink in for a moment – even if you have excellent credit, with the above assumptions, you'll still pay hundreds of thousands of dollars in interest over the course of your life.
What if you have the worst credit (a credit score below 550)? You'll pay more than $666,000 in interest charges over a lifetime – almost two-thirds of a million dollars. Some people with bad credit may not even earn that much over their lifetime.
The situation could be even worse, depending on the future track of interest rates. Credit card interest rates are already relatively high, but rates on a mortgage – the greatest source of interest payments for most people – are still at historic lows. Mortgage interest rates were never below 5% from 1972 to October 2009, but have remained below 5% since March 2011.
Are you convinced of the importance of a credit score? If you aren't aware of your score, check it now – but don't forget to check your credit report as well. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
Your credit score reflects all the information in your credit report, distilled down to a single number. Errors in your report or fraudulent charges or accounts could be damaging your credit score, so check it carefully.
Think of your credit score as an asset to be monitored and nurtured. Take steps to prevent identity thieves from ruining your credit – and be responsible with credit to avoid ruining it yourself. Make all monthly payments on time and keep credit use low compared to your credit limit. Those are the two greatest steps you can take to keep your credit score high.
With a regular check on your credit score and credit report, and good credit practices, you'll minimize interest costs over your lifetime. Why pay a lender any more than you have to?
If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool.