How to Turn Credit Repair Into Cash (And Where to Spend It)

rebuilding credit

Consumers don’t like hypotheticals. For better or worse, we rely on tangible results to motivate us into making changes. If you’ve been contemplating credit repair, you’re probably wondering, “What’s in it for me?” Read on and you’ll be glad you asked.

The truth is simple and easy to overlook: Credit score points equal cash gained or lost in interest. Let’s look at financing a new car as an example. Suppose you need a $25,000 auto loan. You’ve struggled with late medical bills and a home foreclosure in the past, and your current FICO credit score is 582. According to MyFICO, you can expect these interest rates based on your score:

Image Source: MyFICO

A low credit score means you’ll qualify for a loan with a whopping 15.22% interest rate attached, whereas raising your score to 720 or higher would reduce your rate to 3.597% and save you thousands of dollars over the life of the loan. So, what could you do with an extra $7,596?

Pay Off Debt

Perhaps the best thing about credit repair is the snowball effect; the better your credit score, the more you’ll save in revolving and fixed interest rates and insurance premiums. If you don’t see automatic changes, you can refinance fixed loans and contact your revolving credit lenders to lower your rates. If you live in a state that allows employers to run credit checks on job applicants, good credit could even help you secure a well-paying position. The sum of these benefits is an opportunity to pay off existing balances on your credit cards, medical bills, and other debts that affect your credit utilization ratio, or the amount you owe vs. your total credit limit. Utilization accounts for 30% of your FICO credit score, and the lower your ratio, the better your credit score.

Save for Retirement

The average cost of retirement today is $738,400 according to a 2017 Merrill Lynch survey. While three quarters of $1 million may seem like plenty of savings, it averages out to $24,613 in income per year for 30 years of retirement. Ouch.

Time is a huge benefit in retirement savings. Suppose you put your $7,596 in savings in a retirement account that earns a 7% annual return. Even if you contribute nothing else, your initial investment will grow to $81,099 after 35 years. If you contribute just $100 per month during that time, your savings will increase to $258,595.

It doesn’t take a large investment to produce a worthwhile reward. Saving money with good credit makes your day-to-day life easier, and it could fund your retirement down the road. Consider funneling your savings into long-term investments. You can’t afford to waste time.

Pay for College

Whether it’s for you or your little one, investing in a 529 savings plan will help you finance a college education without the burden of taxes. Like retirement funds, 529 funds are invested in stocks, bonds, and mutual funds to grow your investment—and there are no limits. You’ll also pay no taxes as long as you use your funds for qualified education expenses (more on that here).

Buy a House

Credit and cash go hand-in-hand when it comes to buying a house. Not only do you need excellent credit to secure the best mortgage interest rate, you’ll need a down-payment to qualify for a mortgage.

For instance, suppose you want to buy a house for $135,000. Unless you qualify for an FHA or VA loan, most lenders require a minimum of 10% down—$13,500 in this case—to qualify for a mortgage. Use a few years of credit score-related savings to secure a long-term investment. 

Plan a Vacation

Wouldn’t it be nice to take a vacation without worry? If you’re simply long overdue for a break, transform your FICO credit score improvements into rest and relaxation. Consider using a portion of your savings to plan a getaway based on affordability (with no credit card required). A much-deserved break will motivate you to keep the cash rolling in by maintaining the best credit possible.

If your your credit is affecting your ability to get the things you want, learn how you can start repairing your credit here

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