Mortgages and Credit Scores

Research has shown that there is a strong correlation between credit scores and repaying debt. The higher a person’s credit score, the more likely they are to pay the debt. For example, consider the following statistics:

  • Those with credit scores below 500 are about 85% likely to be at least 90 days delinquent with a payment over a two-year period
  • Those with credit scores between 500 and 549 are 71% likely to be at least 90 days delinquent with a payment over a two-year period
  • Those with credit scores between 550 and 599 are 51% likely to be at least 90 days delinquent with a payment over a two-year period
  • Those with credit scores between 600 and 649 are 31% likely be at least 90 days delinquent with a payment over a two year period
  • Those with credit scores between 650 and 699 are 15% likely be at least 90 days delinquent with a payment over a two year period
  • Those with credit scores between 700 and 749 are 5% likely be at least 90 days delinquent with a payment over a two year period
  • Those with credit scores higher than 750 are only about 1% likely to default on the debt

Because the credit score gives lenders a very good indication of the risk they are taking when they extend you credit, it is impossible to get any sort of financing without having your credit score evaluated. This is also why consumers with higher credit scores pay much less in interest charges than those with lower credit scores and why you should work to raise your credit score as high as you possibly can. As the next topic illustrates, it will save you a fortune.

The most important reason to increase your credit score as much as you possibly can is that a house is the biggest purchase you will ever make in your life and the most expensive. Every half point increase in the mortgage loan interest rate increases your monthly payment, sometimes dramatically if your house is very expensive.

Not only do you save substantially with a higher credit score, some lenders will reward you if your credit score is higher than 725, by lowering your interest rate by about 1/4th of a percent. If it is between 700 and 724, it will be lowered by 1/8th of a percent. This translates in to thousands in saved finance charges and a lower monthly payment. Other lenders might not reward those with good credit scores, but add on interest points for those with bad ones. In any event, it pays to have a high credit score because you will have a lower monthly payment and save thousands in added finance charges.

A credit score around 500 is going to result in paying an interest rate that is two or more points higher than that offered to those with excellent credit. This doesn’t sound like a big deal until you realize that it will result in a $200 or more higher monthly payment on the typical $100,000; 30-year mortgage loan. That’s at least $72,000 more you’re going to pay for your house!

Editor’s Note:</>

We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).

If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.

But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.

The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.

This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.

Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit

Posted by Christian C Culpepper