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:
Auto Loans ($25,000 for a 5 year term)
|
Jim |
Carol |
|
|
Credit Score |
750 |
650 |
|
Interest Rates |
6% |
10% |
|
Monthly Payments |
$483 |
$531 |
|
Total Interest Per Loan |
$3,999 |
$6,870 |
|
Total Payment Interest & 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 as a 30-year fixed loan)
|
Jim |
Carol |
|
|
Credit Score |
750 |
650 |
|
Interest Rates |
5% |
9% |
|
Monthly Payments |
$1,879 |
$2,816 |
|
Total Interest Per Loan |
$326,395 |
$663,824 |
|
Total Payment Interest & Principal |
$676,395 |
$1,013,824 |
|
Carol’s Penalty |
$337,429 |
Under the above example, Jim’s excellent 750 credit score afforded 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.