Good Credit
Ads on TV, radio and in newspapers would have you believe that bad credit is no problem. They promise quick, easy financing even if you've had a bankruptcy! It's enough to make you believe that good credit isn't that important anymore. But don't be fooled.
Have you ever read the fine print on those "easy credit" ads? If you do, you'll find that people with bad credit and bankruptcies are paying double, triple, even quadruple the amount of interest that a person with good credit pays. For example:
Let's say a person with good credit qualifies for a five-year car loan for $17,000 with an APR of 8%. Here's what he or she will actually pay for the car.
- Amount Financed $17,000
- Interest paid in 5 years at 8% $5,000
- Total price of the loan $22,000
But that same person with bad credit or no credit will pay a higher price because of the greater risk involved for the lender. For our example, we'll say triple the original rate of 8%--that equals 24%.
- Amount Financed $17,000
- Interest paid in 5 years at 24% $17,000
- Total price of the loan $34,000
In this comparison, good credit will save the borrower $12,000 in five years!
If you think those numbers are impressive, think about the difference good credit can make in your mortgage payment. An article in the Los Angeles Times warned that "A poor credit rating can wind up costing a borrower an extra $418 per month on a $300,000 loan. That's $5,016 a year or $150,446 over the course of a 30-year loan."
But paying less for the credit you need isn't the only benefit of having good credit. Take a look at the following list of advantages you'll enjoy for being a responsible credit user.
- More employers are checking the credit ratings of prospective employees than
ever before. If your credit is good, you've already got an edge on competitors
who haven't proven themselves to be as responsible.
- Insurance companies will check your credit report if you apply for certain types
of insurance. Good credit can qualify you for better rates.
- Good credit makes it easier for you to obtain more credit whenever you need it. So if your roof springs a leak or you need a new car -- you won't have to worry about how to cover the cost.
So how can you be sure that you fall into the category of responsible credit users? There's only one way to find out!
