Like most people, you aren’t rich. You can’t afford to pay for everything upfront with cash. Fortunately, there’s an alternative… MAINTAINING GOOD CREDIT. Whether it’s for personal expenses, a new car or a mortgage, credit is available to help with these important purchases.
When the time comes to make a large purchase, your credit worthiness will be determined by your credit score. If you’ve paid your bills on time, and not over extended yourself with excessive debt, your credit should be in good standing. If you’ve missed payments in the past, or carry excessive debt, you may run into some issues.
Maintaining good credit suggests to a lender that you’re a good risk. Because you’re a good risk, you’ll be eligible to receive low interest loans in return. On the contrary, poor credit suggests to a lender that you’re high risk. Because you’re high risk, you’ll pay higher interest rates on borrowed money, or even be denied credit altogether.
For example: A new car costs $40,000. On a six year loan, with a 780 credit score, the interest rate is 1.99%. Over six years, the total amount of interest paid will be $2,468. With a 700 credit score, the rate is 2.99%. Over six years, total interest paid would be $3,744. That’s a difference of $1,276. With a sub-par credit score (below 650), the rate could be as high as 8.99%. On the same loan over six years, the amount of interest paid would be $11,899. When dealing with mortgages, dollar amounts are much higher and terms or much longer. Having good credit when applying for a mortgage loan can potentially save you hundreds of thousands of dollars over the course of 30 years.
If you’re looking to borrow money, a local credit union is the place to go. Like other lenders, a credit union will assess credit risk with each potential borrower, but they may offer the same loan as another lender at a lower rate. In addition, a local credit union may be able to help their members re-establish their credit and get them back on track.
Reason #56 on why you should join a credit union.