Credit Scores, Interest Rates, and You
Credit Scores are one of the main factors in making financial decisions. We’ve compiled information from our resources and have put together a basic set of guidelines that may help you determine where you stand in terms of credit.
This guide assumes that you meet other requirements, such as:
- Enough money for a down payment (at least 20% of the overall cost of the product, service, etc.)
- Additional savings
- Income totaling at least three times the amount of the total payment (which relates to your debt-to-income ratio)
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With the requirements above kept in mind, here is how your credit score may affect your interest rate:
- Excellent (760–850): Your credit score will have no impact on the interest rate. You will likely be offered the lowest interest rate available.
- Very Good (700–760): Your credit score will have little to no impact on your interest rate. You will likely be offered an interest rate approximately 0.1%–0.25% higher than the lowest rate available.
- Good (660–699): Your credit score may have a small impact on your interest rate. You will likely be offered an interest rate around 0.5% higher than the lowest rate available.
- Moderate (620–660): Your credit score will certainly begin to affect your interest rate. You will likely be offered an interest rate that is approximately 1%–1.5% higher than the lowest rate available.
- Poor (580–620): Your credit score will have a great impact on interest rates. You will likely be offered an interest rate approximately 3%–5% higher than the lowest rate available.
- Very Poor (500–580): Your credit score will severely affect your interest rate. You will likely be offered a very high rate that will depend on a variety of circumstances that are taken into consideration (other debt, debt-to-income ratio, credit utilization, etc.).
While the information above is a generalized outline of credit scores and their impact on interest rates, the decision is ultimately up to the entity you are working with to make your next big purchase.
