Credit Score 820: How much cheaper are loans with good credit?
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Creditors consider applicants with a credit score of 820 to be “golden.” If you can do this, you will have ample access to credit and pay less. In some cases, much less.
- Mortgage rates for those with high credit standing are about 1.5% lower than those for borrowers with fair credit.
- Five-year auto loan interest rates are about 11% lower for borrowers with excellent credit than those with poor credit scores.
- Credit card rates typically range between 13% and 23%, depending on your credit score.
Check your new rate (January 10, 2022)
A FICO score of 820 is not a unicorn
A credit score of 820 is a thing of beauty, the magic key that opens up a world of lower mortgage rates and easier loan applications.
At first, it may seem that a credit score of 820 is a mythical goal, something only stingers, hermits, and CPAs can achieve. The reality is that everyone has a chance of getting high credit scores, and it’s actually easier than it looks.
Related: Boost Your FICO 100 Points In 2018 And Save Big On Everything
When we talk about the 820 credit score, what we are really talking about is the FICO system, the pioneering credit score concept developed by the Fair Isaac Corporation. The idea is to uniformly measure the use of credit. The possible scores range from 300 to 850 on the FICO system while other credit scoring programs have other ranges.
Basic credit concepts
Credit scores do not measure income. Your score does not increase due to the increase in your income. You can earn low income and have great credit, and you can also be rich and have a credit rating that’s in the dumper. The real problem is how you pay off your debts.
According to Fair Isaac’s MyFico site, credit scores are based on five factors:
• Payment history: 35%
• Amounts owed: 30% (also called utilization, or percentage of available credit used)
• Length of credit history: 15%
• Credit composition: 10%
• New credit: 10%
You don’t need perfect credit to get a mortgage or any other type of financing. Only a small number of people are expected to have stratospheric credit scores, and that’s okay. Many lenders offer their best rates to borrowers with a credit score between 700 and above.
Related: What Credit Score Do You Need To Rent An Apartment?
Ratings or levels on personal loan, mortgage, or credit card sites often look like this:
- 720 or more: Excellent
- 660 – 719: Average / Good
- 620 – 659: Fair
- 620 or less: poor
It is important to note that different lenders have different credit score standards. Lender A may give their best rate to someone with a score of 720, while Lender B may charge 740. Since different lenders have different credit standards, it pays to compare rates.
The 1.5 percent difference
Mortgage rates for those with high credit standing are about 1.5% lower than those for borrowers with fair credit.
MyFico has a calculator that shows how credit scores can be linked to mortgage rates. The usual rule applies: lower scores correspond to higher rates. For example, a borrower with a credit score of 620 might pay 5.8%, while a borrower with a score of 760 might have 4.25% financing.
For a mortgage of $ 200,000, the difference is a monthly payment for principal and interest of $ 1,180 versus $ 985. That’s $ 195 per month, or $ 2,340 per year.
Auto loans: The difference between 3% and almost 14%
Five-year auto loan interest rates are about 11% lower for borrowers with excellent credit than those with poor credit scores.
In the world of auto financing, credit score categories are divided into five groups, according to Experian.
- Super prime – 781-850
- Premium – 661-780
- Not first – 601-660
- Subprime – 501-600
- Deep subprime – 300-500
At the end of 2017, according to Experian, blue chip borrowers were paying 3.17% for new car loans. What about deep subprime borrowers? Their typical new car financing was valued at 13.76%, a difference of almost 11 percentage points, or 1,100 basis points in terms of financing.
For a five-year, $ 30,000 car loan, the cost difference is significant. The deep subprime borrower will pay $ 694.32 per month while the super prime borrower will have a cost of $ 541.33. That’s a difference of over $ 150 a month or $ 1,800 a year.
Wouldn’t you rather pay 13% rather than 23%?
Credit card rates typically range between 13% and 23%, depending on your credit score.
As with other forms of borrowing, credit card interest levels are tied to your credit scores. Higher credit scores will produce lower interest rates.
That said, credit card interest rates are not tied to general economic trends – credit card interest rates today are about the same as in 2006. In 2006, the prime rate was 8.25% in the middle of the year, a rate that fell to 4.75. early 2018.
Regardless of your creditworthiness, even if you have a credit score of 820, the best way to deal with credit card interest rates is to avoid them. Pay off your balance every month and avoid high credit card interest rates.
Check your new rate (January 10, 2022)