Does a poor credit score really matter?

Yes.  The answer is unequivocally yes!  In fact, sometimes all it takes is a single missed payment to knock more than 100 points off your credit score and label you as a  “high-risk” borrower. Your credit score is a significant factor in determining  what an individual or entity will pay for a mortgage, auto loan, credit cards, and insurance.

For example, let’s examine how to different FICO score may affect two friends; Jim who has an excellent  750 and Carol with a poor 650:

Jim Carol
CREDIT SCORE 750 650
AUTO LOANS ($25,000 – 5 year term )
Interest rates 6.00% 10.00%
Monthly payments $483 $531
Total interest per loan $3,999 $6,870
Total Payment Interest and Principal $28,999 $31,870
Carol’s Penalty $2,871
Under the above example, Jim’s excellent 750 credit score afforded him a low 6% interest rate,however, Carol’s poor 650 credit score made her a greater risk and therefore the lender offered her a 10%

interest rate.The mere 4% difference in the interest rate forced Carol to pay an additional $2,871 over Jim.

 

MORTGAGE  ($350,000 – 30 year fixed loan)
Interest rate 5.00% 9.00%
Monthly payments $1,879 $2,816
Total interest per loan $326,395 $663,824
Total payment Interest and Principal $676,395 $1,013,824
     Carol’s Penalty $337,429

Under the above example, Jim’s excellent 750 credit score afforeded him  a low 5% interest rate,

however, Carol’s poor 650 credit score made her a greater risk and therefore the lender offered her a 9%

interest rate. The mere 4% difference in the interest rate forced Carol to pay an additional $337,429 over Jim.