Americans with simply “fair” credit scores pay thousands of dollars more in interest on credit cards, student loans and other long-term debt compared to borrowers with more favorable credit scores, news shows research.
A person with a credit score range of 580 to 669, for example, will pay an additional $ 3,000 in credit card interest over several years compared to someone with a rating of 740 to 799, which is considered as a “very good” credit rating.
The person with a fair fair credit rating will also pay an additional $ 41,000 in interest over the term of a 30-year mortgage.
These estimates – published in a recent LendingTree analysis – emphasize how important it is to have a high credit score, said a researcher from LendingTree.
“Having a higher credit score is ideal,” said Kali McFadden, who conducted the study, “and increasing a credit score is actually not as intimidating as a lot of people think.”
McFadden examined LendingTree users’ loan balances and credit card balances reported to the Federal Reserve Bank of New York and the TransUnion credit bureau. She compared the interest rates and other fees that a borrower would pay if the person’s credit rating was considered fair or very good.
Bottom Line: People with fair credit pay $ 56,400 more on their personal loans, car loans, student loans, mortgages and credit cards. The $ 56,400 is based on paying off a personal loan over three years, a car loan over five years, student loans over a decade, and credit card payments over 12 years.
Debt can be a necessary evil because auto loans help people get a car to get to work and student loans give Americans access to college degrees, McFadden said. Still, raising your credit score and then refinancing the debt can help a borrower pay less interest, she said.
McFadden noted another LendingTree study that found that there are two basic ways people can increase their credit score by 100 points in a year.
“Basically they paid their bills on time – that’s the biggest one,” McFadden said. “The other is to reduce those credit card balances.”
Credit cards are the biggest anchor on Americans’ credit scores, McFadden noted.
But be careful closing a refunded credit card account, which may be seen as a bad decision by rating agencies, warned Jill Schlesinger, CBS News business analyst.
“Oddly, in some cases if you close a credit card account it can sometimes lower your score,” Schlesinger said.on CBS This Morning “So if you wanna get rid of that [paid off] overdue credit card, just put it in the back of your drawer. ”
Schlesinger agreed that the best way to improve a credit score is an on-time payment history: “This score basically tells the world, ‘You are creditworthy, or not so creditworthy,’” said Schlesinger.
In recent years, the largest credit bureaus have changed regulations and added new services aimed at increasing the credit rating of Americans. In 2018, most Americansan average of 11 points because of changes to the types of debt credit bureaus that Equifax, Experian and TransUnion could use to calculate a person’s credit score. Things like unpaid tickets and recent medical bills have been taken off the list.
Last year, Experian and the credit scoring company FICO piloted Experian Boost and UltraFICO, which add a person’s bank account information, payment history on their cell phone, and utility bills to one. credit score calculation. This decision would help Americans with little or no credit history.