Understanding the Real Cost of Your Credit Score
Today, every financial institution charges interest to borrowers as a return for lending money. The amount you borrow (the principal) + interest + length of your loan (term) = your total cost of credit.
Let’s assume two people borrow $20,000 for five years (60 months) to purchase a vehicle. Borrower #1 has a high credit score, allowing them to have a lower interest rate. Borrower #2 has a lower credit score, which will make their interest rate much higher:
- At 2.9% interest, the first borrower will pay a total of $21,509.62 for this vehicle by the end of the loan.
- At 14.9% interest, the second borrower will pay a total of $28,487.49 for this vehicle by the end of the loan.
Based on this example, you can see that not taking care of your credit comes at a large cost. By simply taking care of your credit you would save nearly $7,000!!
Similarly, not having enough credit history can cost you. Some people shy away from credit cards, either because they are afraid of them or because they are simply dead set against them. Those who avoid using credit can find it is just as difficult to be approved for a loan as those who have abused credit. Lenders try to determine your creditworthiness when you apply for a loan, and without a good credit track record, people with little to no credit history could be lumped in with those who have a bad credit history. Using credit cards wisely and responsibly is the best course of action when planning for your financial future.
How Peach State Can Help
Peach State has partnered with BALANCE, a financial education and counseling service committed to helping people take control of their finances and improve their credit score. BALANCE counselors can review your credit report, and provide strategies to limit your risk of identity theft and steps to recover if you’ve already been victimized. Visit their website or call 888.456.2227 to speak with a financial counselor about your credit report, identity theft or other financial concerns.
For more information on Peach State’s loan offerings visit our website at https://www.peachstatefcu.net/loans/index.php.