What That Three-digit Credit Score Can Do

How much damage can a low credit score do on your creditworthiness

? It can be huge. You can be refused of a loan or credit card application. If your application is approved, you would be paying a higher interest than normal. This society we live in today is run by credits as a more efficient way of handling huge finances. In order to survive, you too must know your way around credit and you can begin with knowing about credit scores.

If you have previously applied for a loan, insurance or credit card, you would know about credit reports. Your credit report is translated into credit scores and is used by creditors for assessing your creditworthiness. Your credit score information will tell a creditor how much of a risk will doing business with you be. Basically, you will be scored from a range of 300-850 and the lower your score is, the more risky you are on the eyes of creditors.

These days, it is not only creditors who will be looking at your credits scores. Even merchants, employers, and insurance companies check credit score of a prospective client. Your score, while generally computed using the FICO formula, will be computed by insurance companies using their own formula and the result will be called insurance score. Insurance companies found out that they can predict how you will be filing your claims based on your insurance score that is also generated from your credit report.

Let us take an example to better understand how credit scores work. Let us say you on 36-month new auto-loan and your credit score is computed using FICO. If your score is 500-589 your interest rate would be around 18.597. If it is from 625-659 your interest rate would be around 12.225 and if it is 720-850 your interest rate would be around 6.674. You can see that the difference is really big and so, if it is not obvious to you by now, you should make sure that you get a high score by having a good credit report.

Although your score can be subject to different computation methods, you can ask for your score from your creditor. This is included in the provisions of the revised Fair Credit Reporting Act as won by US Congress and lobbyists. Should you be refused a loan or insurance application, you can ask to check credit score and your creditor is required to give you the information. Credit scores are three-digit numbers that can make you lose a chance to get that seven-digit number that you badly need.

by: Leo Chu

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