The information on your credit report directly impacts your credit score. In fact, it's the only thing that impacts your score. Your credit score in turn determines your ability to obtain credit and potentially be approved for loans. Having a poor credit score will either keep you from obtaining credit altogether or place you in a high-risk category, which means that if you're approved for credit or loans, the interest rates you'll be offered will be significantly higher than someone with excellent credit. Over the life of a mortgage, home equity loan, car loan, or student loan, for example, this can cost you tens of thousands of dollars in interest fees.
For example, if you apply for a $250,000, 30-year, fixed-rate mortgage and your credit score is between 760 and 800 (which is excellent), you could qualify for a rate of 5.9%. This would make your monthly payment $1,482.84. Someone with a credit score of between 660 and 679 might qualify for an interest rate of 6.51% for that same loan. Thus, their monthly payment would be $1,581.81. Someone with a credit score of 620 to 639 might qualify for an interest rate of 7.49%. This would make their monthly payment $1,746.32.
In this example, the person with the credit score between 660 and 679 would pay $1,187.84 per year extra in interest compared to the person with the excellent credit score of between 760 and 800. Over the 30-year term of the loan, that's an extra $35,629.20 in interest fees alone. Meanwhile, the person with the credit score between 620 and 639 would pay $3,161.76 per year extra in interest compared to the person with excellent credit score of 760 and 800. This means that over the term of the loan, the person with the lower credit score would pay $94,852.80 extra in interest compared to someone with what would be considered excellent credit.
