Latest news with #Ulzheimer
CNBC
12-08-2025
- Business
- CNBC
Bad credit triggers a 'subprime tax,' Bankrate says — over decades, it can cost borrowers $100,000
Having a low credit score can come at a significant cost, according to recent data. Americans with a credit score of 620 or below pay about $3,400 per year for essential financial products in what Bankrate, in a new report, calls a "subprime tax." The "subprime tax" comes in the form of higher interest rates on products such as mortgages, credit cards, auto and personal loans, and pricier premiums on auto and home insurance. Borrowers with a score of 620 pay, on average, $1,330 more annually in mortgage loan interest than those with credit scores of 700, Bankrate found. Compared with that group, subprime borrowers also pay $745 more annually in auto loan interest, $514 more in auto insurance premiums, $398 more in home insurance premiums, $328 more in personal loan interest, and $89 more in credit card interest. If a borrower doesn't improve their score, the subprime tax can snowball over the long run, Bankrate found. Over five years, Bankrate's report said, the subprime tax can cost about $17,016, and over 30 years, the cost is roughly $102,094. More from Personal Finance:EV sales soar as Trump axes $7,500 tax creditStudent loan borrowers face 'cliff effect' under new payment planWhat private assets in 401(k) plans mean for investors Bankrate said the insurance premium and debt calculations were based on national average data from Bankrate, Experian and FICO. Bankrate defined a score of 620 and lower as subprime, and a score of 700 and higher as prime. The subprime tax affects roughly 21% of American adults, Bankrate estimated. As of April, the average FICO credit score in the U.S. is 715. The score ranges from 300 to 850; the higher the credit score, the better. The Bankrate report showcases the value of having a good credit score: A good score increases your likelihood of being approved for loans and of receiving better financing terms, experts say. However, "you don't need a perfect credit score to get the best loan terms," said Ted Rossman, a senior industry analyst at Bankrate. "Generally speaking, lenders stop distinguishing once you hit the mid-700s and above," he said. Your credit score is a "prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports," according to the Consumer Financial Protection Bureau. "It's like a standardized test score," said Rossman. If your credit score is low, lenders may think you are more likely to pay late, said John Ulzheimer, a consumer credit expert. To offset that risk, banks and lenders typically charge the borrower higher interest rates. Lenders have different definitions of what makes a good credit score, Ulzheimer said. Even so, experts say, once your score gets to a certain point, or somewhere in the mid-700s, you are generally in a good place in terms of risk. "The odds of you going delinquent at some point are so low that the lender is happy with taking the risk with you," Ulzheimer said. To improve your credit, first take a look at your credit reports, issued by the three credit reporting bureaus: Experian, TransUnion and Equifax. You can request them for free via Your credit scores are based on the information in those reports. Make sure the information in each of the reports is correct, said Matt Schulz, chief credit analyst at LendingTree. If there's a mistake, which can happen, correcting it can help improve your credit. Otherwise, the "most actionable way" to improve your score is by working toward paying down any credit card debt, said Ulzheimer. "If you can pay down or pay off credit card debt, your scores are going to improve," he said. Reducing your debt can improve your credit utilization ratio, or how much you owe relative to how much credit you have available to you. This factor makes up 30% of your score, according to FICO. Experts typically advise keeping your credit utilization under 30%, but a 2024 LendingTree study found that consumers with the best scores had utilization ratios of around 10%. Another easy way to boost your score is by making on-time payments. Payment history makes up 35% of your score, according to FICO. As you increase your credit score, look for ways to benefit. For example, ask your credit card issuers if you can qualify for a lower rate, and see if your insurers will reassess your policy premiums. Gauge whether it's worth refinancing any current loans.
Yahoo
14-04-2025
- Business
- Yahoo
I'm a Credit Expert: Avoid One Common Pitfall When Working To Improve Your Credit Score
Credit scores are a key indicator of your financial worthiness in the eyes of lenders. A healthy score can provide access to better interest rates for mortgages, auto loans, personal loans and more. Meanwhile, a low credit score can make it impossible to qualify for lines of credit and may hinder your ability to achieve milestones, like buying your first home or a new card. One factor in particular that can seriously damage your credit score is having too much debt. Read More: Check Out: According to the latest data from the Federal Reserve Bank of New York, American debt has reached staggering levels. Total U.S. household debt increased by $93 billion, reaching $18.04 billion as of Q4 2024. At the same time, credit card delinquency rates and mortgage balances are also up. While these statistics are concerning, there are ways to improve your credit and get ahead. Credit expert John Ulzheimer spoke with CNBC Make It to explain the one mistake he made and how he fixed it. Ulzheimer's biggest credit mistake? He says it was only using one credit card with a low credit limit of just $600. Since his credit limit was so low, he was usually maxing out the card and using too much of his available credit. To remedy this, he started opening additional credit cards to improve his credit utilization rate (which accounts for about 30% of your credit score). It's generally recommended by experts that you use less than 10% of your available credit at any given time. Maintaining multiple credit cards simultaneously may help lower your credit utilization ratio and improve your credit score. Try This: Another CNBC source with input from Ulzheimer explained that your FICO score, which is the primary credit score used by the majority of lenders, can range from 300 to 850 and is calculated based on several weighted categories: Your payment history (35%): Calculated by whether you've paid your credit card bills in full and on time. The amounts you owe (30%): Calculated by the amount of credit you're using and how high of balance you're carrying. The length of your credit history (15%): Determined by how long you've had credit cards, how long you've been paying back loans, etc. Your credit mix (10%): Determined by the blend of credit accounts you're maintaining, from credit cards to installment loans and more. New lines of credit (10%): Determined by the length of time since you've applied for new lines of credit. If you're looking to increase your credit limit, opening multiple cards is one way to do that. However, it's not for everyone since a higher credit limit means the ability to overspend, which may potentially land you in debt. 'Some people think a $10,000 credit limit means that you somehow have $10,000 cash, and then it's OK to go out and spend all this stuff,' said Ulzheimer. He furthered that discipline and self-control are key. Just because you may have multiple credit cards simultaneously and a high combined credit limit, this doesn't mean you should spend more money than you can afford to pay. 'It does take discipline to not go crazy and go out and spend, spend, spend, just because you have the capability of doing so,' explained Ulzheimer. If you're too tempted, it's not a bad idea to stick to debit cards to avoid accumulating credit card debt. More From GOBankingRates 5 Types of Vehicles Retirees Should Stay Away From Buying How Far $750K Plus Social Security Goes in Retirement in Every US Region 4 Things You Should Do if You Want To Retire Early 25 Places To Buy a Home If You Want It To Gain Value This article originally appeared on I'm a Credit Expert: Avoid One Common Pitfall When Working To Improve Your Credit Score Sign in to access your portfolio
