You paid $300K too much on your mortgage
After you graduated from school, you think that there is no more testing or exams? Wrong! Whether you are at work, in the mall or on a vacation, you are always being assessed.
Why do I say so? Well… there is one thing called “FICO” score. What the hell is it?
It is a credit score and FICO is the acronym for “Fair Isaac Corporation”, a publicly-traded corporation. ( )
FICO score is derived from a credit score model created by Fair Isaac Corporation and is widely used by banks and lenders. FICO scores are intended to show the likelihood that a borrower will default on a loan. They range from 300-850. The higher is better and therefore lower interest rates.
Just did a study on how FICO score affects my personal finance. According to MyFICO.com, for a 30 Year fixed mortgage with a loan amount of $300,000, here is the monthly payment
There is a $900 difference ($2676 vs $1779) on the monthly payment depends on the credit score. Over 30 years, a person with poor credit score pays $324000 more than the one with excellent credit score.
I have poor credit score… what should I do? According to WikiPedia , here is the approximate weighted contribution to FICO score:
35% - Punctuality of payment in the past: Tip: make payment on time.
30% - amount of debt: Tip: reduce your debt (e.g. credit card balance, student loan, etc)
15% - length of credit history: Tip: if you have too many new credit card or new debt, it is good to eliminate the new ones and keep your oldest credit card.
10% - type of credit used (e.g. installment, revolving, consumer finance)… not very clear how this is calculated
10% - recent search for credit and/or amount of credit obtained recently: Tip: when going to mall, don’t get a store credit card just to get some discount. It may cost you more when you want to apply for a mortgage.
Credit score reporting is handled by 3 agencies (Equifax, Experian, and TransUnion). Whenever your applied for a loan or delinquent on a payment, these agencies are notified. Banks, lenders and even landlords obtain your credit score from one of these agencies to help their decision on loans and leases. Sometimes, there maybe inaccuracies in your credit profile, it is a good idea to check your credit report or get automatic alerts ( )
So, you are responsible for your behavior. Be frugal. Live within your means.