Personal Finance

LendingTree Study Shows How Much a “Fair” Credit Score Can Cost

As confusing as credit scores can be for some people, one thing is fairly clear: a higher score means paying less for financing. But how much less? A recent study by LendingTree compiled the data to find out how much those with “very good” credit save in interest compared to those with only “fair” credit scores.

For the purposes of their report, LendingTree defined a “fair” credit score as being between 580 and 669 using the FICO model. Meanwhile a “very good” score ranges from 740 up to 799. A reminder that most FICO models go up to 850 points on the high end and down to 300 on the low — although certain models can go from 250 to 900.

With those parameters, the study found that those with very good scores saved an average of $56,400 across five common loan types when compared to those with fair credit. That amounts to about $316 a month in savings. Obviously the bulk of this figure comes from mortgages where more credit-worthy borrowers pay an average of $219,660 in interest over the life of the loan compared to those with lesser credit who pay $261,076.

Of course, while mortgages may show the biggest disparity in dollar amount, the percentages were more pronounced for other types of debt. For example those with only okay credit pay nearly double in credit card interest than those with higher scores do — $6,097 versus $3,102. The gap is even wider for personal loans where individuals with very good credit end up paying an average of $2,889 in interest compared to $6,325 for fair credit consumers. Additionally the dreaded student loan category was also affected, showing a $4,707 difference in interest paid.

Although those figures may seem harsh, there is a silver lining in that the average credit score among Americans is on the rise. In fact a recent report from Experian showed scores reaching a record high of 703. That may still be a way off of meeting the “very good” threshold but their numbers did show that 45% of consumers now have scores over 740 while 34% have scores below 669. Moreover looking to the beginning of the last decade shows that the percentage of adults with “very poor” credit is decreasing while the number of those with “very good” or “exceptional” credit is rising.

Ultimately, while most consumers understand that having better credit can save them money, it’s interesting to see examples of this at play. On top of that, it’s worth remembering that the differences between these two credit thresholds can be as small as 71 points. Alas raising your credit score from “fair” to “very good” is likely easier said than done — although understanding your credit, making on-time payments, and paying down existing debt can all go a long way toward achieving that goal. Hopefully the trend of rising credit scores will continue, allowing more Americans to enjoy lower-cost financing options.