How to save $50,000 on your mortgage, credit card and car by boosting your credit score — and winning the battle against inflation

Here’s a potential hedge against inflation to save money in times of rising costs and interest rates: a rising credit rating.

People with “very good” credit scores could avoid almost $50,000 in additional borrowing costs for mortgages, credit cards, car loans and personal loans than people with “acceptable” credit scores. should pay.

The nearly $50,000 is an estimate of incremental costs paid over the lifetime of deals like a 30-year mortgage, a five-year car loan and a three-year personal loan. On a monthly basis, consumers with the highest score range could keep $252 — not a pittance, especially now.

It depends a new analysis of LendingTree after comparing the offers that lenders offered to users in these two credit score ranges during the second quarter.

Credit scores can range from 300 to 850. A “very good” score ranges from 740 to 799, while a “fair” score ranges from 580 to 669. Americans had an average score of 716 in April, unchanged from a year ago, according to FICO FICO,
-1.24%.

A “fair” credit consumer making minimum payments might pay nearly $18,700 on a balance of $6,600, while a “very good” credit consumer might pay around $15,000 on the same balance.

A “fair” credit consumer making minimum payments might pay close to $18,700 on a balance of $6,600, while a “very good” credit consumer might pay around $15,000 on the same balance.

A $28,000 car loan could cost a consumer with “fair” credit on a “very good” score an additional $2,500, according to data from LendingTree.

Meanwhile, a $315,000 mortgage – at an interest rate of over 5% – could cost a “fair” credit consumer over $40,000 more than a mortgage holder with a “very good” credit rating. (Of course, a mortgage above 5% seems like a distant hope with mortgage rates now approaching 7%).

Credit scores have long been an important number for consumers because of how they factor into lenders’ decisions about rates and terms. But household borrowing costs are now front and center, and rumors of a possible recession will keep household finances on their minds.

Credit scores have long been an important number for consumers because of how they factor into lenders’ decisions about rates and terms, especially with rising rates and the rumblings of recession.

Prices have risen at high rates in four decades, most recently seen in an August inflation report showing an 8.5% year-on-year increase, despite falling prices from gasoline.

Interest rates also climbed, propelled directly and indirectly by the Federal Reserve’s continued rate hikes aimed at calming inflation. Last week, the central bank added another 75 basis point increase and Federal Reserve Chairman Jerome Powell announced that more would follow “until the job is done.”

“It’s much more expensive to borrow today than it was six months ago, and it’s likely to only get more expensive in the near future,” said Matt Schulz, chief credit analyst at LendingTree. .

The average annual interest rate on new credit card offers is currently 21.59% in September, down from 21.4% in August, according to LendingTree estimates.

Three-month trends from Bankrate.com show the same dynamic, with credit card offers averaging 18.38% APR, down from 18.16%. You’ll need to go back to January 1996 for a comparable APR of 18.12%, Bankrate experts said.

How to improve a score, when will it happen?

LendingTree’s estimated price differences highlight “how important your credit scores continue to be even in the face of rising inflation and aggressive rate hikes,” the consumer credit expert said. John Ulzheimer.

“In fact, the most important factor in determining the cost of credit is still the quality of your credit, as measured by your credit scores,” said Ulzheimer, who previously worked at Equifax and FICO.

Is there room for improvement with your credit score? And, if so, when should you expect it to rise?

Check your reports for any errors. In fact, the three major credit reporting companies, Equifax EFX,
-3.13%,
EXPERIAN EXPGF,
+1.80%
and TransUnion TRU,
-3.00%
last week they announced that they would be extend free weekly credit reports until 2023.

It is also important to make payments in a timely manner. Payment history is an important part of a credit score, and one missed payment could drop your score by 90 to 110 points, LendingTree said.

There are many ways to reduce a score, Ulzheimer said, and that means there are plenty of ways to build it, too. “But, generally speaking, if you stop missing payments and limit the amount of your credit card debt — then lather, rinse, repeat — you’ll end up with good and then great scores.”

Now for the bad news: There’s no fixed timeline for how quickly credit scores improve, Ulzheimer noted.

It could take a month — or it could take a few years, he said. It depends on whether you’re trying to get debts, like a credit card balance, on your report or just waiting for derogatory information to get off the report, he said. Or maybe consumers are facing a combination of both issues, he said.

Suppose a score gets bogged down due to credit card debt, but the borrower writes a check to extinguish the debt. In this case, a score can improve in 30 days, he said.

But if the score is flawed? Ulzheimer said, “You’ll be waiting up to seven years for your scores to fully recover.”

Don’t miss:

Fannie Mae is launching a pilot program to include on-time rent payments in credit reports. Here’s why it could be a game-changer for tenants.

About Galen A. Williams

Check Also

RBI raises repo rate by 50 basis points to 5.90%; home and auto loans to be impacted

The Reserve Bank of India has raised the repo rate or prime rate by 50 …