How to save $50,000 on your mortgage, credit card and car by boosting your credit score — and winning the battle against inflation


By Andrew Keshner

Equifax, Experian and TransUnion recently announced free weekly credit checks through 2023

Here’s a potential hedge against inflation to save money in times of rising costs and interest rates: a rising credit rating.

People with “very good” credit scores could avoid almost $50,000 in extra mortgage, credit card, car loan and personal loan borrowing costs that people with “acceptable” credit would have to pay.

The nearly $50,000 is an estimate of incremental costs paid over the lifetime of deals like a 30-year mortgage, a five-year car loan and a three-year personal loan. On a monthly basis, consumers with the highest score range could keep $252 — not a pittance, especially now.

That’s according to a new analysis from LendingTree after comparing the deals lenders offered to users in these two credit score ranges during the second quarter.

Credit scores can range from 300 to 850. A “very good” score ranges from 740 to 799, while an “ok” score ranges from 580 to 669. Americans had an average score of 716 in April , unchanged from a year ago, according to FICO (FICO).

A “fair” credit consumer making minimum payments might pay close to $18,700 on a balance of $6,600, while a “very good” credit consumer might pay around $15,000 on the same balance.

A $28,000 auto loan could cost a consumer with “fair” credit on a “very good” score an extra $2,500, according to data from LendingTree.

Meanwhile, a $315,000 mortgage – at an interest rate of over 5% – could cost more than $40,000 more to a “fair” credit consumer than to a mortgage holder with a “very good” credit rating. (Of course, a mortgage above 5% seems like a distant hope with mortgage rates now approaching 7%).

Credit scores have long been an important number for consumers because of how they factor into lenders’ decisions about rates and terms. But household borrowing costs are now front and center, and rumors of a possible recession will keep household finances on their minds.

Prices have risen at high rates for four decades, most recently seen in an August inflation report showing an 8.5% year-on-year increase, despite falling prices from gasoline

Interest rates also climbed, propelled directly and indirectly by the Federal Reserve’s continued rate hikes aimed at calming inflation. Last week, the central bank added another 75 basis point hike and Federal Reserve Chairman Jerome Powell announced that more would be forthcoming “until the job is done.”

“It’s much more expensive to borrow today than it was six months ago, and it’s likely to only get more expensive in the near future,” said Matt Schulz, chief credit analyst at LendingTree. .

The average annual interest rate on new credit card offers is currently 21.59% in September, down from 21.4% in August, according to LendingTree estimates.’s three-month trends show the same dynamic, with credit card offers averaging 18.38% APR, down from 18.16%. You’ll have to go back to January 1996 for a comparable APR of 18.12%, Bankrate experts said.

How to improve a score, when will it happen?

Price differences estimated by LendingTree underscore “how important your credit scores continue to be even in the face of rising inflation and aggressive rate hikes,” said consumer credit expert John Ulzheimer. .

“In fact, the most important factor in determining the cost of credit remains the quality of your credit, as measured by your credit scores,” said Ulzheimer, who previously worked at Equifax and FICO.

Is there room for improvement with your credit score? And, if so, when should you expect it to rise?

Check your reports for any errors. In fact, the three major credit reporting companies, Equifax (EFX), Experian and TransUnion (TRU) announced last week that they would extend free weekly credit reports through 2023.

It is also important to make payments in a timely manner. Payment history is an important part of a credit score, and one missed payment could drop your score by 90 to 110 points, LendingTree said.

There are many ways to lower a score, Ulzheimer said, and that means there are also many ways to build it up. “But, generally speaking, if you stop missing payments and limit the amount of credit card debt you have — then lather, rinse, repeat — eventually you’ll get good, then great scores.”

Now for the bad news: There’s no fixed timeline for how quickly credit scores improve, Ulzheimer noted.

It could take a month — or it could take a few years, he said. It depends on whether you’re trying to get debts, like a credit card balance, on your report or just waiting for derogatory information to get off the report, he said. Or maybe consumers are facing a combination of both issues, he said.

Suppose a score gets bogged down due to credit card debt, but the borrower writes a check to extinguish the debt. In this case, a score can improve in 30 days, he said.

But if the score is flawed? Ulzheimer said, “You’ll be waiting up to seven years for your scores to fully recover.”

Don’t miss:

Fannie Mae is launching a pilot program to include on-time rent payments in credit reports. Here’s why it could be a game-changer for tenants

-Andrew Keshner


(END) Dow Jones Newswire

09-29-22 0915ET

Copyright (c) 2022 Dow Jones & Company, Inc.


Comments are closed.