Don’t believe me?
Lets say you obtain a $250,000 home loan on a 30 year mortgage. With a 5% fixed mortgage, you will make total payments over 30 years of $614,389 or $1,707 a month for 360 months.
If your interest rate went up to 7% due to your credit history, your total payments over 30 years will be $730,022 or $2,028 per month for $360 months. A difference of $115,633!
I can also add a little fuel to the fire if you don’t mind. If you applied the savings of $321 a month between the two monthly payments, $1,707 with the 5% fixed rate mortgage and $2,028 per month with 7% fixed rate mortgage, and invested that into a Roth IRA over 30 years, you would accumulate $633,631 with a 10% return.
Do I have your attention now?
Improving Your Credit Score
In future posts, I will take the time to explain all the ways you can improve your credit score.
This post is to remind you how important it is to pay your bills on time. Here is an excerpt from an interview with a FICO (the company who determines the formula for your credit score) employee in one of my favorite personal finance books, I Will Teach You to be Rich by Ramit Sethi:
“Paying your bills on time is absolutely critical,” says FICO’s Craig Watts. “It’s by far the most important thing you can do to improve your credit rating.” If you miss a credit card payment, you might as well just get a shovel and repeatedly beat yourself in the face. The credit card companies are going to get you-and the worst part is, you earned it.
Most people pay their credit card bills online now, but if you have’nt set up automatic payment yet, log on to your credit card’s website to set it up now.
You won’t believe how many people can’t achieve their financial goals because of a bad credit score. This is just a reminder to not let something as simple as paying your bills on time, keep you from following your dreams.
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