Are you one of those people who plan to go through life with bad credit? From credit cards to mortgage loans and everything in between, people with poor credit pay much more for goods and services purchased over time than those with excellent credit. The information below should convince you it’s time to earn and keep an excellent credit rating to save yourself thousands of dollars over your lifetime.
Mortgage Loans: Because homes are so expensive today, mortgage loans involve a large amount of money and as a result, even a one-half percent variation in the mortgage loan interest rate is significant. In some areas of the country, homes are so expensive that just a tiny increase in the interest rate adds hundreds to your monthly mortgage payment.
Consider the following hypothetical situation: Person A with excellent credit obtains a mortgage at 8% and Person B with not so good credit obtains a mortgage at 10%. Person A and Person B each borrow $100,000. Person B with bad credit will pay $21,412.80 more on a 15-year mortgage and $51,843.60 more on a 30-year mortgage. Note the difference in monthly payments.
| Person A | Person B | Difference | |
|---|---|---|---|
| Monthly payment on a 15-year mortgage | $955.65 | $1,074.61 | $21,412.80* |
| Monthly payment on a 30-year mortgage | $733.76 | $877.57 | $51,843.60** |
* [$955.65 x 180 months] – [$1,074.61 x 180 months]
** [$733.76 x 360 months] – [$877.57 x 360 months]
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