[Editor’s Note: Today’s guest post was submitted by Jonathan Brozek, a Physician Mortgage Loan Specialist with US Bank and a long-time advertiser here. I think too many Americans, in the words of Dave Ramsey, “worship at the FICO altar”, but I think it’s a little naive even for someone like me who has no debt and never plans to borrow again to say I don’t care about credit score whatsoever. Life changes and maybe you’ll need to borrow again. Maybe you want to get a special credit card deal. Or perhaps your employer or insurance company uses your credit score to evaluate your trustworthiness. Either way, it’s probably a good idea to at least know what a credit score is, who uses it, and check your score and credit report from time to time. But don’t obsess over it. It’s one of those things that you need to keep “good enough” (740-760) until you’re done getting mortgages and refinancing student loans. And once you’re past that point, your score will probably be good enough to get all the loans you don’t want anyway. ]
Having a good credit score is more important than ever because it dictates just about every lending decision and impacts many business dealings. This is especially true for high-income and high-net-worth individuals, who have far more at risk when it comes to identity theft and data hacking (read on to # 5 below).
So, why should you give your credit score and report a check-up once every six months or even more? Here are 10 intelligent and tangible benefits of maintaining a good credit score:
#1 Home Loans: Having a Good Credit Score Can Save You Thousands of Dollars
Of course, one of the most prominent benefits of having a good credit score is the savings it will create when it comes time to get a home loan. And while there are certain programs that allow first-time buyers and consumers with marginal FICO scores to buy a home (like FHA loans), a high FICO (740-850) will result in significantly lower interest rates and better loan options, saving you a surprising amount of money.
For example, let’s take a home purchase at a price of $300,000 (just for illustration purposes). Assuming a 10% down payment and some closing costs, let’s say that the loan amount comes to $274,640.With a 5% mortgage interest rate, your monthly payment would be $1,474 with a total loan payoff of $530,758 over 30 years (interest and principal payments).
However, if your credit score was high enough to qualify for a 4.5% interest rate, that same loan amount would come with $1,392 monthly payments for a total payoff of $500,962. A better credit score already saved you $30,000+.
And if you had a top-flight FICO that allowed you to take advantage of the stellar 4% mortgage interest rate, your payments would be only $1,311 for a total payoff of $471,960.
So, you’d save $58,736 over thirty years just by keeping your credit score in top health! That’s only an illustration with one mortgage loan and home purchase, but you can imagine the profound savings if we look at buying several homes and refinancing over the course of your life.
It is also worth noting that you may be able to obtain a lower rate even with a lower-tiered FICO score, but it may come at a cost higher than someone with a higher FICO score rating. Also, you may be able to use discount points to get the rate you desire regardless of your credit score. The Federal Trade Commission has relevant information regarding credit scores here; Federal Trade Commission – Credit Scores. Always consult with a mortgage professional to understand the full impact your credit score will have on your home financing.
Your credit score or FICO score may not only affect your mortgage interest rate, but It may also impact your loan qualifying. Each lender that offers a physician mortgage will have different criteria when it comes to your FICO score. Some lenders’ minimum requirements are less than others while some lenders will charge more in the form of higher rates or fees to offset the risk of a lower FICO score. The difference between a 739-qualifying credit score or a 740-qualifying credit score could cost you thousands of dollars up front or over the life of the loan. Always ask for a spread of your interest rate options so you can make a sound decision.
#2 Easier to Get Business Loans/Raise Capital at Better Rates
Jonathan Brozek, US Bank
There may come a time when you want to expand your business dealings or even open your own practice or clinic. When that time comes, a higher FICO score will serve you greatly. When you have challenged credit, it may be challenging to raise capital and get approved for leases, equipment, and other contracts. Likewise, you’ll want to establish a credit score for your business aside from personal credit (if you didn’t know that was possible, you’re not alone!)
#3 Investing in Real Estate: Easier Approval With Better Lending Terms
Once you’ve purchased your own home and paid your high interest debt down to a reasonable level, it is common for high net worth individuals is to investigate investing in real estate. That usually means buying rental properties or other projects, and while that involves a fair amount of cash, a great credit score will help you keep the down payment as low as possible, get approved for equity lines, and otherwise improve the ROI on your investment.
#4 Notice/fix credit reporting errors: Make Sure Your Good Credit Rating Stays That Way
I know what you might be thinking, “I’ve already bought my home, invested, my business is great, and I have an 850 FICO score. Why should I bother reviewing my credit report?”
Even though you’re managing your credit correctly, the credit bureaus and your creditors may not be doing the same. In fact, a study by the Federal Trade Commission found that more than 1 in 5 credit reports (21%) contained serious errors or incorrect information. Once those errors erode your credit score, they could cost you in the form of higher interest rates on credit cards, auto loans, and more.
#5 Protect Yourself From ID Theft, Financial Hacking, Etc.
Aside from errors, the most compelling reason of all to monitor your credit score is the threat of identity theft, financing hacks, and other data breaches. Just last year, Experian was compromised, with the sensitive financial information of about 143 million Americans falling into the wrong hands.
If that doesn’t motivate you to act, here are a few other facts to consider:
- This year, an estimated 50 million Americans will be the victim of ID theft or financial-hacking – about one in six people.
- In 64% of ID theft cases, the bad guys get hold of your credit card numbers (and goes on a spending spree),
- And 34% of cases include bank accounts and debit card misuse.
But, without regularly giving your credit a checkup, it may not be apparent right away that your credit has been stolen. In fact, only 50% of all ID theft victims realize that their identity has been stolen within 90 days, and 15% don’t realize it for up to four YEARS or longer!
Aside from the financial damage, the process of restoring your credit (and your good name) can be long, arduous, and costly.
“Your fiscal fitness is nearly as important as your physical fitness in 2019,” says Jeff Sipes, Founder, and President of Blue Water Credit (a credit repair agency), “Your credit scores now determine your eligibility for so many opportunities. When time is of the essence you need to be proactive, not reactive, on the proper understanding of your credit and credit scores.”
#6 Save with Lower Interest Rates on Credit Cards, Auto Loans, etc
If your FICO score isn’t optimal, chances are you’re paying way more than necessary on credit cards and other loans. A comprehensive Bankrate.com survey uncovered some eye-opening numbers, such as:
- With a credit score of 600-679, the average credit card Annual Percentage Rate is now 22.9% in the U.S.
- But if your score falls within the 680-739 range, that APR drops to 17.99%.
- Furthermore, if your score is excellent (740-850), that APR is only 12.99% or less.
- Projecting over five years, they found that having a top-notch credit score would save you about $25,000 in interest charges alone over those 60 months!
There’s a vast discrepancy in interest rates for auto financing based on your credit score, too. According to Vantage Score, the average terms for an auto loan range from 18.9% for poor or subprime credit down to 5.1% for consumers with excellent credit scores. That gap can also save you big bucks over the course of the typical 5-year term with a $25,00 balance – over $10,000 in total payments.
#7 Save on Insurance, Utilities, Etc
You may not be aware that insurance companies in some states factor in a customer’s credit score when assigning policies (among other factors). Likewise, cell phone carriers and utility companies also base their contracts on the creditworthiness of an applicant. And if you’re looking to rent instead of buying a home in a high-cost area like San Francisco, New York, Boston, or other major cities, your credit score better be spectacular, or landlords won’t even consider you!
#8 Easier Access to Equity and Quick Working Capital
You never know when a golden opportunity arises, and being ready with quick access to large sums of equity allows you to take advantage – and cash in. Maintaining an exemplary credit score will allow you to gain favor to any bank or lending institution, allowing you to access credit lines and working capital on short notice.
#9 Student Loans: Better Options for Refinancing
These days, the average college graduate leaves school and enters the working world with $37,172 in student loan debt. If you’re an M.D., Ph.D., RN, or any medical professional, you’re probably chuckling at that minuscule number!
There’s no doubt that paying off student loans is a huge concern for young professionals just beginning their practice, and there are no quick fixes for student loans (unfortunately). However, a great credit score will give you better options like refinancing your student loans, loan consolidation, or paying them off with personal loans or home equity loans. Either way, a high FICO can only help you save on monthly student loan payments AND pay them off expeditiously.
#10 More Employers are Checking Credit
Even if you’re not planning on taking out a loan anytime soon, a poor performing credit score could come back to sting you. That’s because more and more employers are checking credit for their applicants, especially firms in governmental and financial sectors. But that also includes any firm that deals with sensitive data and confidential records – including healthcare providers.
“With competition at an all-time high in the job market, having good credit is a must. Many employers now have a view that great credit equals a great employee.” — Jeff Sipes, Blue Water Credit
In fact, almost 50% of all companies in these fields are accessing credit reports for their applicants now, and 1 in 10 Americans have been denied gainful employment because of a credit issue. Remember that, even if you do everything right with your credit, data breaches, ID theft, or hacks can cause you to lose out on that dream promotion or ideal placement.
More than ever maintaining a strong and secure credit profile is relevant to our personal and financial wellbeing. Understanding the basics may be enough to keep your credit protected. But taking a few extra steps to protect your credit is worth adding to your annual to-do list. At a minimum check into your credit profile every 6 months and apply a credit freeze to at least 2 of the credit bureaus (see more below). In total, the time spent will be less than an hour. What you gain from being informed and in charge of your credit is priceless.
What do you think? Has having a good credit score been important to you? Do you check your credit score regularly? Comment below!
I had one more year left of medical school. My wife finished her professional degree program. Took a job in a town a few hours away requiring her to rent an apartment. She was declined for having a low credit score. She had a 6 figure job and about 60k in student loans. No other debt. No late payments or anything else. She had a credit card for the past 10 years.
So I applied for the apartment. I had no income and over 200k in debt. For some reason I had a high 700 credit score and we were able to get the place without further trouble.
Ever since then I was convinced that credit scores are little better then a random dart throw.
At this point in my life I do not think I will be using my credit score again.
Thanks for sharing. The more debt you have accumulated the more it appears you should keep track of those debts the same way you track your assets. This is a protective measure for your future credit profile. You definitely don’t want to dwell simply on debt. You want to be in a good position to manage it.
Those debts are long since paid off. My credit score has since decreased. It appears that not having student loans and car loans and only one credit card makes me more of a risk.
My point is that some of the things that make your credit score good are some of the things that keep people poor and in debt. It is not that we are a safe bet to lend too. We are just good Consumers.
I think monitoring your score is fine. I just would not do things like keeping debt around or have multiple cards to boost your score. If anything that increases your chance for fraud.
I kinda watch my score because of the fraud piece. Also might want for business equity. Fortunately, most every other reason goes away with journey to and reaching FI.
Good point. I have found however a few cases where physicians later in their career are wanting to co-sign on a home loan with their children or even buy a second home. Ive seen recent examples where medical professionals are purchasing an investment home for their parents. Life goals change so it is sounds advice to keep a well rounded financial profile (even credit)
The other thing the “Credit Score of 0!” folks fail to acknowledge is how easy it is to keep a decent credit score. I mean, I basically haven’t had any debt for 2 1/2 years and even then it was just a mortgage for 7 years prior to that, but I’ve got an 800+ credit score just for running gas and groceries through a card. It’s not like this really takes much effort.
Jim, I think you underestimate the ease of paying off a loan or never missing a payment. Outside of your readership, this is unusual.
If it is hard to pay off a loan and not miss a payment, perhaps that loan should not be taken out.
At any rate, I’m writing and commenting for my readership. 🙂
Good overall list. However, if you have read and followed the rest of WCI’s recommendations, the only ones that should be important are 1, 2 and 3. Sad that the others even have to be mentioned for physicians.
Were glad you were able to take away a few good points. Its worth noting that medical students and residents that have been exhaustively studying/working towards a permanent position can always use some helpful financial pointers that may not necessarily be common knowledge.
Where is the “(see more below)” info regarding the recommendation to place security freezes at two credit bureaus?
Is this a tricky process to deal with after it is initiated in the event you want a new credit card or mortgage?
Is there another formal blog post on the issue of using credit freezes?
Hey there. Here is some more info regarding credit freezes.
Should I freeze my credit?
More than ever, it’s important to monitor your credit and take precautions to prevent having your credit compromised or identity stolen. Luckily, there is a protocol in place to help protect your score, identity, and finances: freezing your credit.
Once a security freeze is placed on a consumer’s credit, lenders and any third party won’t be able to access their credit information or account at all. Even the consumer will have to follow special protocols if they’d like to apply for new credit or make changes. No new credit will be extended but unlike a fraud alert, you will need to file a security freeze with each credit bureau individually.
Instead of 90 days, 12 months, or 7 years, a security freeze will stay in place until the consumer removes it. They also can lift the freeze temporarily if they wish to apply for new credit or make specific changes as a one-time thing, using a secret code or special pin number.
For someone who is in a high-profile and with considerable means, a security freeze may be a great protective measure. It is advised to apply a credit freeze for at least one of the three reporting credits bureaus Equifax, Experian, or Trans Union. Contact information to initiate a freeze can be found on the Consumer information section of the Federal Trade Commission web site https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs
Yes, you have to unfreeze it. I’m not sure what that phrase refers too, hopefully Jonathan will clarify.
I don’t have a blog post on the topic, no.
I’ve had a good credit score, a terrible credit score, and surprisingly NO credit score over the years.
It really didn’t make much difference to my financial life.
Although it is good to understand the issues in this post, most doctors shouldn’t worry too much about getting the best kind of rate on debt.
Hopefully, most docs have great credit scores. Even so, it is worth checking regularly to catch fraud early. Many credit cards offer free credit scores and credit reports. You may not be planning on borrowing more money and have shopped for good insurance prices. But if you are a victim of credit fraud, the sooner you know the better.
But the column is good advice for people who are not in the financial situation of typical physicians.
You might be surprised. I’ve run into lots of docs with terrible credit scores. I bet Jonathan can share some stories.
Yes doctors are human too. I think the general takeaway is not to add more to your plate or be concerned daily with your credit score or profile. Take a few measures to make sure it is protected and check in occasionally to make sure things are correctly reported. Add it to your to do list twice a year and be informed. Ive spoke to high earners who have been victims of identity theft and its not pretty.