Many consumers are aware that not having a good credit score can be very costly, but do you know how much it can affect you and your wallet? A bad credit score can result in higher monthly payments, and as a worst case scenario, result in being denied for lines of credit.
Meet our fictional characters Edward, Gregory and Andrew.
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Edward has an excellent credit score rating falling in the range of 720-850. Having an excellent credit score, Edward will qualify for some of the best offers and interest rates available. |
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Gregory has a good credit score rating falling in the range of 690-719. Having a good credit score, Gregory will qualify for lines of credit at decent interest rates. |
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Andrew has an average credit score rating falling in the range of 630-689. Andrew has been having some trouble with his finances and his credit score has consequently been affected. Andrew, out of the three consumers, will qualify for lines of credit, but at less desirable interest rates since he is seen as a bigger risk. |
Home Mortgage Loans
In this scenario, our friends will be taking out a mortgage in the amount of $175,000. It is important to note that credit scores will only be one factor considered upon applying for a mortgage. You should also remember that other factors such as debt-to-income ratios and down payments can also affect the total of the monthly payment or ability to qualify for a home loan.
$175,000 Home Mortgage Loan - 30 Year FRM
|
Credit Score |
Interest Rate |
Monthly Payment |
|
| Edward |
Excellent 720-850 |
4.134% |
$849 |
| Gregory |
Good 690-719 |
4.533% |
$890 |
| Andrew |
Average 630-689 |
5.723% |
$1018 |
Due to Edward’s excellent credit score rating, he has been able to obtain the best interest rate and the lowest monthly payment of the three. Gregory, on the other hand, must pay $41 more, while Andrew, with an average credit score, must pay $169 more than Edward.
Renting vs. Owning
Another scenario consumers in different credit scoring brackets may face is the ability to qualify for a home loan. Consumers with an average credit score or lower have a much harder time being able to qualify for a home loan. Due to this, people such as Andrew have to look to other options such as renting.
$175K Home
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| Monthly Payment |
$849 *(Plus applicable property and school taxes) |
$1018 *(Plus applicable property and school taxes) |
$1575 |
| Total yearly expense |
$10188 |
$12216 |
$18900 |
We already determined that Andrew would pay $169 more than Edward on the same mortgage due to their differences in credit scores. When renting the same home, Andrew pays $726 more than Edward, who obtained a home loan for the same home. If Andrew were to obtain a mortgage on the same home, he would be saving $557 on his monthly payment versus renting the home.
Besides saving on expenses, there are also other reasons why owning is preferred over renting.
- Control of changes- Have you always wanted lime green walls? Go ahead! The walls are yours now and you can do with them what you’d like. When you obtain a mortgage, you can design and upgrade your home as you’d like.
- Tax Deductions- Being a property owner, you are now qualified for some new tax considerations. You can now deduct mortgage interest, property taxes, and other home related expenses. Tax deduction bonuses such as these are not available to renters.
- Equity- When you are paying rent, you are putting money into your landlord’s pockets and helping them pay off their mortgage. On the other hand, if you obtain a mortgage, you are investing into the ownership of your home.
Where does your credit score fall? If you are attempting to obtain your dream home or even refinance your current mortgage, ensure your credit is in line for the best interest options. Be sure to check your credit score before applying for a mortgage or refinance to see where you stand. If you find any discrepancies on your credit report, contact MSI Credit Solutions. We can provide you with a free, no obligation credit consultation to determine your needs and help get you closer to your goal of home ownership.
MSI Credit Solutions provides superior credit restoration and comprehensive consulting services that are reliable and affordable. For any questions or to schedule a free credit consultation, contact us at (866) 217-9841.
*The information in this article has been provided strictly for educational purposes.
