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.
Your credit score can impact your ability to qualify for new credit and negotiate the best interest deal on a loan. It can also complicate the process of being approved for new credit as well as finding a new 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.
While there are myriads of credit scores floating around, the benchmark score lenders rely on the most is the FICO score (Fair Issac Corporation). FICO score ranges from 300 to as high as 850. Naturally the higher scores command the best interest rate loans. The median score is 725. Over 75% of home loan companies depend on this score to pre-qualify their applicants for a mortgage. If you have a distressed score below 650, expect to pay considerably higher interest rates for a loan.
Lenders place all lot of weight on your credit score when determining if you’re a good candidate for a loan. Applicants with scores in the upper ranges are treated as dependable credit risks and are offered the lowest interest rates. Applicants with scores down in the lower range are looked upon as poor credit risks-if approved for a loan, these applicants are offered higher interest rates on a loan.
Insurance companies also place great weight on your credit score when evaluating you for a policy. Insurers believe there is a direct correlation between the quality of your score and the likelihood of you filing a claim. Independent studies reveal the greater propensity for individuals with a low credit score to file a claim. Therefore, expect your insurance premiums to be higher than someone who has a better score.
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.
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