Keeping your credit in good health is very important for your financial future. By being on time with your payments and building a substantial credit history, you could save up to tens of thousands or even hundreds of thousands of dollars over your lifetime.

Let’s say Mark wants to get a mortgage loan with a good interest rate. The problem is that his credit is not very good. He has the money to pay bills and usually does, but can never get the money in on time. In the last year, Mark has been 90 days late or more twice. Yesterday he went to a mortgage company to see his options for a 30-year fixed rate loan on a $500,000 home.

The company explained that his rates were high because of his low FICO scores and his high chances of default based on the scores. Mark’s score is 600 which translates to a current interest rate of 9.5% because with that score his chances of being delinquent 90 days or longer over the next two years are eight to one. If he were to buy that $500,000 home, his monthly payments would be too high for his budget at $4,204.27 and the total interest paid over the 30-year loan would be $1,013,539. If Mark had a FICO score of 720, he could get a 6.5% rate and his total interest paid at the end of the 30 years would be $637,722. That is $375,817 less money he would be paying. With payments over $4,000, he might not even be able to afford them causing his credit fall worse and worse – assuming he can even get the loan.

Certainly a bank would be more willing to give a loan to someone whose odds are approximately one in 1300 rather than someone whose odds are one in eight. These odds basically mean that 1,300 people walk into a mortgage company with a credit score of 800 or more, say they want a mortgage, fill out the application and obtain the loan. Statistics say that only one person would probably be 90 days late or more in the next two years with that score. With a credit score of 600, Mark’s risk is really high which make his interest rate.

Now if his credit score was at 702 instead of 600, his yearly savings would be $11,035 dollars. The interest Mark would save would be just over $300,000 over the life of the 30-year loan. With that much money saved, He could have more financial freedom to invest, keep for retirement, save for kids’ college, or anything else. Let’s say Mark had those savings and every year invested in an investment with a 10% return. The compounded total after the 30-years of the loan would be close to two million dollars. Just imagine what Mark’s life would be like if he had an extra two million dollars! But because of Mark’s poor credit, he would be still stuck with zero savings and would pay a lot more in interest than if he had a credit score of 702.

So Stay on top of your credit. If you do have bad credit, put yourself on a plan to build it back up again. Otherwise, you will be stuck paying a considerable amount extra on mortgage loans, auto loans, credit cards and even insurance payments high.