How Valuable Is a Higher Credit Score?

You've heard it a million times before: increasing your credit score can have amazing benefits. However, you might be skeptical that moving this seemingly-magical number up a few points can really make all that much of a difference. LendingTree decided to prove the value of a great credit score by quantifying the money that someone with a "very good" score would save in interest compared to someone with a "fair" score. They found that a score of "very good" would save you over $29,000 on mortgage debt alone!

Although saving money on interest is great, the most obvious reason to raise your credit score is to qualify for loans in the first place. That being said, this study looked only at the amount of savings available to people with higher scores through reduced interest rates.

The first step was defining the credit score ranges being compared. LendingTree defined a "fair" score as one between 580-669, while a "very good" score fell between 740-799. They then measured the difference in costs over the life of five different loan types (mortgage, student loan, auto loan, personal loan, and credit card) using the average balances for each type as a starting point and assuming that the person with better credit was offered a lower rate (or could refinance at a lower rate in the case of student loans).

A typical person probably doesn't have all five of these loans at the same time, but let's assume for now that this was the case. How much money would they save in reduced interest over the life of that debt? The answer is a shocking $45,283! Plus, this doesn't account for the easier refinancing that a person with a higher credit score would likely take advantage of during loan repayment. Additionally, those savings could be used to repay the loan faster, further reducing interest by shortening the life of the loan.

Looking at just mortgage debt, someone with very good credit would stand to save $29,106 in interest over the life of a $234,437 mortgage. Due to the size of a mortgage loan, this represented the majority of the total debt savings; however, the relative savings accrued compared to someone with a lower score were greatest for auto debt (311% more interest payed with "fair credit"), personal debt (271% more), and credit card debt (248% more).

As you can see, working to raise your credit score is definitely worth the effort! Pay down existing debt, make timely payments, and resist taking on new debt until that score gets into a higher range!