CHARLOTTE, N.C., Jan. 8, 2020 /PRNewswire/ --
LendingTree®, the nation's leading online loan
marketplace, today released a study on the financial impact of
raising a 'fair' credit score to 'very good' that found consumers
could save over $56,000 across the
lifetime of common interest-carrying debt types. On a monthly
basis, that translates to an average total difference of
$316 per month.
LendingTree researchers analyzed anonymized loan request and
average loan balance data from LendingTree users to see how a lower
credit score can increase borrowing costs for the average American
with a fair versus excellent credit score. The analysts compared
the range of credit scores generally considered "fair" (580 to 669)
to the range generally considered "very good" (740 to 799) to
measure the difference in costs of the life of loans using the
average balances for five different kinds of loans (mortgage,
student loan, auto loan, personal loan and credit card).
Study Highlights:
- Raising a credit score from fair (580-669) to very good
(740-799) saves $56,400 across five
common loan types. That's an average total difference of
$316 a month.
- Mortgage costs account for 73% of those savings ($41,416 in savings with "very good" credit versus
"fair").
- Refinancing student loans comes with the second biggest savings
difference at $4,707, or 8% of the
total difference in interest.
- Borrowers with fair credit can expect to pay more than twice as
much in interest for personal, auto and student loans, and 97% more
on credit cards.
Total Interest Paid over Lifetime of Loans
The study analyzed borrowing costs across the 5 most common debt
types, using average amounts for each outstanding debt. Assuming a
borrower repays all five debts on time, their total costs for
interest and fees will amount to $233,209 (for very good credit) or $289,609 (for fair credit). That's a difference
of $56,400 in interest and fees. (To
put that into perspective, the median earnings for Americans in
2018 was $35,291, according to
the U.S. Census Bureau.)
Debt
Type
|
Average
Debt Amount
|
Interest with
Paid
"Fair" Credit
|
Interest Paid
with
"Very Good"
Credit
|
Total Difference
in
Interest Paid (based on
credit)
|
Credit
cards
|
$3,668
|
$6,097
|
$3,102
|
$2,995
|
Personal
loans
|
$11,342
|
$6,325
|
$2,889
|
$3,436
|
Auto loans
|
$25,346
|
$7,471
|
$3,625
|
$3,846
|
Student
loans
|
$35,208
|
$8,640
|
$3,933
|
$4,707
|
Mortgage
|
$253,435
|
$261,076
|
$219,660
|
$41,416
|
Total
|
|
$56.40
|
Even Americans who don't carry all five of these debt types can
save significantly with very good versus fair credit. Assuming
every other factor is equal, someone with a very good credit score
would have a monthly mortgage bill that is $115 lower than someone with a fair credit score.
They could invest that money, use it to pay down other debts or
save for future down payments.
Raising your credit score isn't as hard as it sounds
The idea of managing your credit score can be intimidating and
might seem like a lot of effort. The good news is that it's not as
complicated or opaque as many people fear.
Changes to your credit score can happen quickly, with some
consumers seeing positive changes in a relatively short period of
time for things like paying down credit debt or disputing any
errors on credit reports. Those who plan to take out a mortgage or
other loan type should refrain from opening new credit accounts, as
credit checks and young accounts can lower your credit rating. And
for those in good standing with card issuers, it may make sense to
ask for a higher credit limit, thereby lowering your overall
utilization ratio (not increasing your buying power).
Credit monitoring can be an essential key to the process because
it helps you identify what may be affecting your credit score and
how ongoing decisions can change it. For instance, My
LendingTree alerts users to significant changes in their
credit report within 30 minutes.
For the full report, please visit:
https://www.lendingtree.com/personal/study-raising-credit-score-saves-money/
Methodology
Average loan balances and interest rates for personal, auto and
mortgage loans were calculated from loan requests and offers from
loan amounts requested by inquiring borrowers on the LendingTree
platform in Q3 2018 and aggregated by credit score band.
Average credit card balance was calculated using a combination
of data sources, including the New York Federal Reserve, anonymous
My LendingTree user reports and TransUnion.
Credit card rates were provided by Matt
Schulz, chief industry analyst at CompareCards, and average
credit card balance was calculated using a combination of data
sources, including the New York Federal Reserve, anonymous My
LendingTree user reports and TransUnion. We assumed credit card
borrowers paid the monthly minimum on the existing debt, which we
calculated as (principal * 1%) + (accrued interest).
For student loans, we assumed that those with a very good credit
score could refinance at current private refinance rates, while
those who don't continue to pay current undergraduate federal loan
rates. Average student debt was calculated from anonymized My
LendingTree user credit report data.
About LendingTree
LendingTree (NASDAQ: TREE) is the
nation's leading online marketplace that connects consumers with
the choices they need to be confident in their financial decisions.
LendingTree empowers consumers to shop for financial services the
same way they would shop for airline tickets or hotel stays,
comparing multiple offers from a nationwide network of over 500
partners in one simple search, and can choose the option that best
fits their financial needs. Services include mortgage loans,
refinances, auto loans, personal loans, business loans, student
refinances, credit cards and more. Through the My LendingTree
platform, consumers receive free credit scores, credit monitoring,
customized recommendations to improve credit health, and
notification when there are opportunities to save money. In short,
LendingTree's purpose is to help simplify financial decisions for
life's meaningful moments through choice, education and support.
LendingTree, LLC is a subsidiary of LendingTree, Inc. For more
information, go to www.lendingtree.com, dial 800-555-TREE, like our
Facebook page and/or follow us on Twitter @LendingTree.
MEDIA CONTACT:
Megan Greuling
704-943-8208
Megan.greuling@lendingtree.com
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SOURCE LendingTree.com