What difference does a score make?

Let’s take a look at how the credit reporting agencies break down your score.

Here is a simple breakdown on how credit scores affect interest rates on loans:
• Mid 700s and higher: you will be offered the lowest interest rate.
• Low 600s to low 700s: you will be offered low and high rates, so shop around.
• Less than 600: you will be offered the highest rates.
Source: Girl: Get Your Credit Straight by Glinda Bridgforth

And here is a more specific breakdown:

A Typical FICO Score Breakdown*
If your FICO score is:	Your credit rating is considered:	And you will pay:
720–850	Excellent	The lowest interest rates on loans.
690–719	Good to Excellent	Low or high rates; shop around.
660–689	Good	High rates; shop around.
625–659	Fair	Very high rates; shop around.
590–624	Poor	The highest interest rates on loans.
500–589	Very Poor	You might not qualify for a loan.
* The exact breakdown varies from lender to lender.

When James decided he was going to buy a new truck, he made a plan to get the best possible rate.
1.	He checked his credit report and score before he started looking for a loan. He found a few errors on his report, corrected them, and received confirmation that the errors were corrected.
2.	He made sure he had a full six months of paying all of his bills by the due date, since that is the fastest way to increase a credit score. James knows a payment is considered late if it is 30 days past due. He also understands what Universal Default is:If he's late on any payment, his lenders may increase the APR on all of his credit accounts, including his car loan.
3.	James ordered a new credit report and score after his six months of on-time payments.
4.	He went to www.MyFico.com and researched what kind of rate he could get based on his credit score. Using a loan calculator on that site, he plugged in: • The type of loan: 48-month used car loan • The loan amount: $6,500 • His credit score: 665
The results looked like this: FICO score: Example based on a $6,500, 48-month, used-car loan Interest Rate Additional interest charged, based on highest score Monthly Payment Additional interest paid per month, based on highest score Total interest paid over life of loan Additional interest paid over life of loan, based on highest score 720–850 7.444%   $157   $1,036   690–719 8.486% 1.04% $160 $3 $1,188 $152 660–689 10.273% 2.83% $166 $9 $1,454 $418 625–659 12.697% 5.25% $173 $16 $1,823 $787 590–624 17.308% 9.86% $189 $32 $2,553 $1,517 500–589             James was elated. By working on his credit ahead of time, he increased his score enough to move into the “good” rating, for a $166 monthly payment. Had James not done all that work, he might have had to pay the $173 monthly amount in the “fair” category. Here is how James’ work paid off: FICO score: Example based on a $6,500, 48-month, used-car loan Interest Rate Additional interest charged Monthly Payment Additional interest paid per month Additional interest paid over life of loan 660–689 Good 10.273%   $166     625–659 Fair 12.697% 2.424 $173 $7 $336 Source for the example: www.myfico.com; interest rates as of 7/27/07 James’ work will pay off in two other ways. 1. Because he researched a loan ahead of time, James knows the rate he can qualify for. He may be offered a lower rate, which would be great. But James knows that he doesn’t have to accept a rate much higher than 10.273%. 2. Each month, James is going to put an extra $7 into his emergency fund with the money saved by improving his credit. By the time he pays off his loan, James will have an extra $336 in his emergency fund (unless he has to use the fund before he pays off his loan).

Source for the example: www.myfico.com; interest rates as of 7/27/07