A short few years ago I had a pretty bad credit score. Fortunately for me, I couldn't qualify to buy a house. If I could have, I probably would have and that would have been a huge mistake. Over the life of the loan, it would have cost thousands and thousands of dollars to get a loan with a higher interest rate.
Lately I've been doing a lot of calculations related to mortgage loans. In particular, I have figured out how much it would have cost to get my current mortgage loan if I had a credit score that's lower than my current score. As it turns out, it would have cost me a ton.
With my current mortgage loan, I borrowed just short of $190,000 and over the course of 30 years, I will end up paying over $135,000 in interest. But, I have a great interest rate. In fact, my interest rate is probably a full two percentage points better than I could have had a few years ago when I had bad credit. At an interest rate that's 2% higher than my current one, I would end up paying $218,00 in interest over the life of the loan. I'm no financial expert but I do know that I can't afford to be paying $80,000 in extra interest in my lifetime, no matter how long the term that it's divided over.
Realistically, I would end up paying at least 1.5% extra in interest if I had a 650 credit score. Calculating the cost of that interest rate over 30 years would have cost me $196,000 in interest - too much for my budget.
Fortunately I learned how to improve my credit. I committed to paying my credit cards completely off and did. Since the first month when I got them paid completely off, I have been paying them off in full. I haven't carried a balance since. I also haven't made a late payment in seven years. My credit score has responded nicely and I now have a great credit score - a full 50 points above what I need to be considered as an "A" candidate.
I'm looking forward to the next time I buy a home. I know that I will get prime rates and that will allow me to get a better home for the same monthly payment. All of my work on my credit will pay off.
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