subject: Your Credit Score - Is It Worth Fretting Over? [print this page] Your credit score, composed of just a few measly numbers, hold such power over the financial future of your life. A score at the lower end of the scale can cost you hundreds even thousands of dollars in interest costs over time. A lender will most likely reject you for a loan because of a low score.
This number is so potent it can drastically influence your power to get a new credit card and mediate the best interest rate for a loan. Your score even has the power to impact the premiums you pay for insurance and your ability to secure a job.
What impacts the final number of your credit score? The final score is calculated by a complex mathematical formula which evaluates how you supervise your use of credit. Your credit score appoints a number value from bits of information contained in your credit report. With this information, a determination of your likelihood to default on future credit is calculated.
You'll be surprised to know there a literally hundreds of credit scores compiled in our country, but the standard for most lenders is the FICO score (Fair Isaac Corporation). The FICO score has been the grandfather of all scores and ranges from 300 to 850. With a higher score, you can qualify for better interest rates. Statistics reveal more than 75% of mortgage companies and financial institutions depend on this score to evaluate potential borrowers. A score of 700 is considered acceptable. Scores below 650 will result in higher interest rate loans.
Mortgage lenders place greater emphasis on the quality of your credit score when evaluating if you are trustworthy enough to repay a loan. If you've taken great lengths to maintain a high credit score, banks will look favorably on your application for a low interest rate loan. However, if you've suffered a financial setback and haven't worked to improve your score, lenders will consider you a higher risk for defaulting on a loan-if you're lucky enough to be approved for a loan; the interest rate offered will be much higher.
Insurance companies depend heavily on this score to tell them if you're someone likely to file a claim. Independent studies by insurers reveal a link between consumers with poor credit and the chance of filing a claim. If you suffer from a terrible score, don't expect your premiums to be as low as someone who has excellent credit.
If you suffer from a lackluster score, there are steps you can take to improve it. Start by requesting a copy of your credit report from the three major bureaus (Experian, Equifax, and TransUnion). Review it carefully for any errors. Make a note of those items that are false and submit a request to delete the incorrect entry.
Another great way to boost your score when you have bad credit is to apply for a secured credit card and begin making timely payments. Over time, you'll begin to notice your FICO score move upward.
