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Ignoring Your FICO Score Can Cost You Dearly

By JLP | August 25, 2009

Check out this graphic I found on the myFICO website:

FICO

I took the information found in that chart and made another graphic showing just how much interest a person would pay over a 30-year mortgage depending on their credit score:

FICO and Mortgage Interest

As you can see, the difference is significant. Just moving from the second highest to the highest FICO Score ranges saves you nearly $10,000 in interest over 30 years (even more if you factor in growth on the $27 per month payment difference). The difference from the lowest to the highest ranges, is nearly $100,000 in interest expense over 30 years (or nearly $200 per month)!

My advice to anyone looking to finance a purchase is to first GET A HANDLE ON YOUR FICO SCORE! The $16 spent to find out your score is an investment—especially if you have no idea what your FICO score is. The information provided to you by myFICO is easy to understand. They also show you areas that are hurting your score and things you can do to improve it.

Then take the time and effort to improve your score. Remember the two most important areas of your FICO score are:

• How timely you are with your payments, and

• How much you owe compared with your total available credit.

I would keep those in mind, along with the other items that go into calculating your credit score (found here) if a major purchase in your future.

Related:

My FICO Score is 794. What’s Your Credit Score?

The 2009 Personal Finance How-to Roundup

Bureaus Roll Out New Credit Score Formula for 2009

How Long Will It Take to Improve a FICO Score?

Topics: Credit, Credit Cards, Mortgages | 5 Comments »


5 Responses to “Ignoring Your FICO Score Can Cost You Dearly”

  1. Terry Says:
    August 25th, 2009 at 2:10 pm

    Is someone who games the system to optimize their FICO score really a much better risk than someone who doesn’t?

  2. JLP Says:
    August 25th, 2009 at 2:18 pm

    Terry,

    That’s a silly comment. Knowing how the system works and what you can do to put yourself in a good position is not “gaming” the system. Rather, it’s being smart.

  3. LOL Says:
    August 26th, 2009 at 3:07 pm

    I think the FICO calculations are flawed. If it doesn’t take into account my INCOME, then it is already woefully broken.

    How can you judge whether someone can pay a debt if you don’t even know their income?

  4. Ashley Says:
    August 26th, 2009 at 5:47 pm

    LOL I’ve never made a purchase that required my credit score to be pulled and didn’t also require me to provide proof of income through a certified document (paycheck stub or W-2). The system definitely has other flaws that need to be addressed. However, As we fight to make the system more accurate we are still held accountable to the standards it has set now. We may as well be smart and educate ourselves on how we can better our scores. I personally use a credit monitoring service and it’s worth every penny.

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    August 27th, 2009 at 4:06 am

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