How Important Is Your Credit Score?

Finding out what your credit score is and how well it ranks with other scores will establish whether or not you can get credit when you apply for it and what interest rate you will be charged for it if you get it. 

The main use of this score is to determine if you are an acceptable risk to loan money to.  Good risk profiles will pay much less in interest due to the fact the bank trusts these debtors with loans on their books will pay them off according to loan terms agreed to and there will be no default and foreclosure costs.  If the bank believes the loan to be a greater than normal risk they have to charge much higher interest rates so they can recover as much money as possible before the loan defaults.

About Credit Bureaus

The main three credit reporting bureaus are Experian, Trans Union and Equifax.  Each of these credit bureaus has access to information reported to them by your creditors. They store it in a database linked to your name and social security number.  This database allows new creditors to query information about your credit history in order to decide if they will extend credit to you and if so at what price.

Get Your Credit Report and Score

The first step is to get a copy of your credit report then find out what your credit score currently is. There are many ways of obtaining your credit reports.  Some of these procedures require signing up for a credit monitoring service although all three credit bureaus will provide you with a free copy of your report once per year.  By utilizing this free method you can ask for a copy from one agency once every four months to monitor your credit reports more frequently than once per year.  To get your credit score in addition to your credit report you may have to pay a minor fee of around nine dollars.

If you don't want to pay the nine dollars for the score don’t underestimate the value of just getting your credit report because your credit score is calculated based upon the overall value of what’s contained in your credit report. If there is false information in the report you can raise your credit score just by monitoring each of the three credit reports to be certain that the information is correct and up to date and correcting it if it is not.

Credit Monitoring Services

Other services available will monitor all three credit reporting bureaus everyday in order to make sure that only authorized individuals are requesting your credit information.  You also will have the opportunity to request a credit report including your credit score once per month without an additional charge.

The Cost of Low Credit Scores

Knowing your credit score is extremely important because the interest you will be charged on any loan is mostly dependent upon your credit score.  According to professionals in the mortgage industry persons with a credit score of 760 or higher will pay considerably less in interest costs than those with a score from 620 to 659.  A score classified as excellent would be a number of 760 or above.  In the recent past low interest rates were available to individuals with a score above 720 but this drastically changed in late 2008 after the world economy took a severe beating.

A score in the lower range will most likely amount to an extra $220.00 per month in interest cost on a mortgage of $300,000. Not just mortgages. This score makes a big difference in the amount of interest you are charged on your credit cards, charge cards and auto loans. 

Pay Attention To and Take Care of Your Score

Even though you may not expect to need a home loan or apply for a home equity line of credit in the near future it is extremely important for everyone to properly manage their credit score and maintain it at the highest possible level.  Your credit score is also important to insurance companies when they rate premiums for renters, homeowners and auto insurance.  Most transactions that involve paying over time will rely upon the credit score that you have to price interest carrying charges.  So the lesson is…take care of your credit score and it will take care of you. With a good or excellent score you will pay less and be able to buy and save more.