Interest Rate and Credit Score

[MillauFr]

I applied for a HELOC and my score dropped by 75 points even before I drew it down.

 

[EACarlson]

No way an application dropped a score 75 points. Opening a new account can change a Credit Karma Vantage score by 75 points but absolutely not a FICO score that lenders actually look at.

 

[MrsCobraBubbles]

I think there are more efficient ways to balance the haves and the have-nots but I guess this is a start? For people saying that it's easy to improve a credit score--it's not. It's out of reach for a good number of low income earners.

 

[Kathryn Merteuil]

I thought that a lot of it had to do with "risk" for the institution.

Good credit score = They will more likely to pay you back
Bad credit score = They are less likely to pay you back

The more risk for the institution, the higher the interest rate. The less risk for the institution, the lower the interest rate.

 

[_19disnA]

There are various media organizations who have published stories about this. Rather then blame the media, I think people should look around and read the various articles available. Whether you think this change is good/bad probably depends on how it might impact you.

 

[Traveling on cc points]

I think there are more efficient ways to balance the haves and the have-nots but I guess this is a start? For people saying that it's easy to improve a credit score--it's not. It's out of reach for a good number of low income earners.

I am not saying it’s easy but it isn’t out of reach for low income earners to reach a score above 700 but it does take several years to achieve it.

 

[Magical2017]

I don't know if it's fair. I pay the bill each month so I don't pay any interest. I was not always in a position to do so, like when I first opened up cc accounts in college. Maybe a lower rate can help people get out of debt.

 

[Cannot_Wait_4Disney]

You mean the media didn't publish the full truth here and doctored up the story in order to stir people up? Shocked I say. I am shocked.

Fox wouldn't do that. They're fair and balanced. And Dissers wouldn't just come and repeat it here on the dis. They're nowhere near political enough to do that.

 

[Ms.Minnie]

When my kids were in HS I told them they needed to establish a credit history, they would need it going forward in their adult lives. I told them not so spend more money than they could payoff at the end of the month. I explained the impact of just paying the "minimum amount" due each month and how long it would take them to pay off the debt if that's what they did. I also explained what the cost would be, it becomes staggering if you only pay the minimum payment. I think this is something that our schools and parents should be teaching our kids, the basics of finance and how it affects them in their everyday lives.

To those who suggest being late on your credit card payments to achieve a lower credit score, the problem with that for me is that I would then have to pay a late fee of $25-$30+ dollars extra. That is a no go for me and why would you want to lower your credit score?

Another thing I think either parents or schools should teach kids is about amortization schedules and how by just making one extra principal payment each month over the course of 10 years could reduce a 30-year mortgage to 20 years. In the beginning of a mortgage the principal payment if very small compared to the whole amount of the payment each month. If it's not possible to make an extra principal payment each month any extra amount you pay towards the principal with reduce the term of the loan and the amount of interest you are paying.

I no longer have a mortgage and it's amazing how nice that is. I do use my credit cards for just about everything, while I'm doing that, I'm earning a small percentage each month in reward dollars. It's a relatively small amount of money but over time it adds up. Just look at a penny, 1M pennies equals $10,000 dollars.

To the onion, I'm glad someone reported it. There's so much that doesn't get covered on other media outlets.

 

[MillauFr]

To those who suggest being late on your credit card payments to achieve a lower credit score, the problem with that for me is that I would then have to pay a late fee of $25-$30+ dollars extra. That is a no go for me and why would you want to lower your credit score?

Didn't the OP suggest that people with a lower credit score would get cheaper loans? If I could cut cut my interest rate by 1% then a few late payments would be worth it. Of course the original post here could be complete false.

 

[GAN]

At first glance this seems like a strange way to help balance things, which in my mind is probably necessary. The only way I can reason with this, is that many/most people who could make moves or refinance at a MUCH lower rate over the last 10-years(?) -did. For instance, I have a mortgage at less than 2% -why in the world, beyond hardship or job relocation, would I sell and look for a better option in this market? That leaves people who couldn’t or younger people on their way up in life …these people are at a big disadvantage given they either have average or not enough credit history. In order for the economy to keep moving forward, we need an active housing market …the alternative is a potential crash which hurts everyone. Not saying this is fair, but it may be necessary.

 

[china mom]

Don't stop paying your bills to lower your credit score for a lower interest rate. This news has nothing to do with interest rates. People with lower scores will continue to qualify for loans and a higher interest rate and people with better scores will get a lower interest rate.

This only applies to a loan fee and does not factor into interest rates. The loan fee is spread out over 30 years and becomes part of your mortgage but the additional fee is still not as bad as the effect of the higher interest rate that you would pay with a lower credit score.

A person with a credit score of 540 borrowing $320K will pay $1898/mo which is $363,293 interest over the lif of a 30 year loan

A person with a credit score above 700 -same loan, will pay $1627/mo which is 265756 in interest over the life of the loan.

It is short sighted to trash your credit to avoid the new fee, which ends up, in the worst case, being an additional $40/mo

Edited to add: I am not defending the change but hate that people are suggesting that they can do better if they lower their credit score.

 

[RamblingMad]

Don't stop paying your bills to lower your credit score for a lower interest rate. This news has nothing to do with interest rates. People with lower scores will continue to qualify for loans and a higher interest rate and people with better scores will get a lower interest rate.

This only applies to a loan fee and does not factor into interest rates. The loan fee is spread out over 30 years and becomes part of your mortgage but the additional fee is still not as bad as the effect of the higher interest rate that you would pay with a lower credit score.

A person with a credit score of 540 borrowing $320K will pay $1898/mo which is $363,293 interest over the lif of a 30 year loan

A person with a credit score above 700 -same loan, will pay $1627/mo which is 265756 in interest over the life of the loan.

It is short sighted to trash your credit to avoid the new fee, which ends up, in the worst case, being an additional $40/mo

Edited to add: I am not defending the change but hate that people are suggesting that they can do better if they lower their credit score.

The fees are still lower for better credit. The news is making way too much out of this. And lenders are tightening, so the lower credit might have more trouble even finding a lender.

 

[china mom]

The fees are still lower for better credit. The news is making way too much out of this. And lenders are tightening, so the lower credit might have more trouble even finding a lender.

Yes, this also.

 

[GreatLakes]

I applied for a HELOC and my score dropped by 75 points even before I drew it down.

This can't be right if it was just an application. Do you mean you opened a HELOC that has a zero balance because you haven't used it yet? Any open line of credit, balance or not, is an obligation to a lender so it will lower your score.

There are a lot of fees for most mortgages that get spread over the life of the loan. This will essentially be a rounding error for most people. You are still better off with a higher score and that is how it should be. Someone with a higher score is less risky and should be rewarded.

 

[MillauFr]

This can't be right if it was just an application. Do you mean you opened a HELOC that has a zero balance because you haven't used it yet? Any open line of credit, balance or not, is an obligation to a lender so it will lower your score.

There are a lot of fees for most mortgages that get spread over the life of the loan. This will essentially be a rounding error for most people. You are still better off with a higher score and that is how it should be. Someone with a higher score is less risky and should be rewarded.

No I applied and it was approved. I believe I drew most of the loan down and my credit score collapsed.

 

[Dan Murphy]

The news is making way too much out of this

I haven't even seen this on the news.

 

[georgina]

I haven't even seen this on the news.

i don't think it has been on the news. I read 2 papers online every day.

 

[Dan Murphy]

i don't think it has been on the news. I read 2 papers online every day.

I read 2 papers every day, the old fashioned way, plus various news feeds online. Must have just missed it. Probably missed it since loans are not in my future, selective skimming. .

 

[LuvOrlando]

I applied for a HELOC and my score dropped by 75 points even before I drew it down.

100% believe you, entire system seems very twitchy.

I have been watching scores like a hawk since 2020 and the numbers have been swinging increasingly wildly for no reason. I have also noticed absurd lags with money moving from one bank to another, it actually vanishes for days at a time so now I do multiple small transactions just to test the systems out of curiosity. At this point, I keep credit balances everywhere like for utilities and pay everything far in advance. Got me some serious deja vu vibes.