Question: How Much Of An Impact Does Your Credit Score Have On Your Interest Rate?

I often find myself saying in class something along the lines of “You will pay more for loans (if you can even get them) if you have a low credit score.  This mini-activity allows students to see ACTUAL data to calculate exactly how much more you would pay on a 30-year mortgage if you have a low credit score.

I found this chart on the FICO.com site:

Screen shot 2015-02-03 at 12.23.25 PM

Here are some questions that you can ask:

  1. Calculate how much a consumer would pay for the 30 year home mortgage if their credit score was 639 ($787 X 360 payments = $283,320).
  2. Calculate how much a consumer would pay if their credit score was 760 ($650 X 360 payments = $234,000)
  3. So, what is the difference between having a low credit score and having a high credit score in this example?  Almost $50,000!