Wednesday, March 30, 2011, AM | 1 Comment
When you have a low credit score and no plans to apply for financing in the near future, you may not be all that worried about the three-digit number that reflects your fiscal responsibility. While you may not need a loan any time soon, your credit score may still cost you thousands.
Why Credit Matters?
Traditionally, credit scores are used as a gauge by lenders or creditors before they must decide whether to approve your application. Credit scores are generated using a complicated calculation based on your past credit history.
The three-digit number reflects how you use your credit, how long you’ve had credit, and what kind of risk you may pose for defaulting on a loan or line of credit.
Lenders can look at the number to make their determination and consumers are encouraged to keep a high score in order to ensure the best interest rates and deals when financing.
When your history of payments on your accounts shows late or missed payment or if you have stretched your credit too thin, your credit score will be lowered.
Each month creditors report back to the three major credit reporting bureaus: Experian, Equifiax, and TransUnion each month. The reporting agencies then compile the data on your credit history report. Your credit score can increase or decrease on a monthly basis.
How Credit Can Cost You
When you apply for a loan or line of credit, the lender will review your past credit history and put a lot of faith into your credit score.
Today’s lenders are looking for a score of 730 or higher as it is considered an ‘excellent rating’.
Anything lower may reflect poorly on your ability to meet payment obligations.
However, most lenders do take other factors into consideration outside of just your score but it will still play a big part in the decision process.
The important thing consumers must know but often don’t realize is that in addition to lenders and creditors, more and more industries are relying on credit scores for decision-making processes.
Landlords often will request a credit check on potential tenants to ensure they are going to make rent.
Employers, especially those in government jobs and financial industries, now require credit checks to see how you handle money.
But the biggest concern money-wise is that industries like insurance companies and credit card providers will use a credit score to develop interest rates, premium costs, and overall charges you must pay to get services. A lower credit score means you will pay more – sometimes a lot more than those with better credit scores.
Credit Repair is Essential
Every consumer has the right to see what their credit score is. There is a fee, typically $15, to access the score from the reporting agencies.
But, as mandated by Federal law, you’re entitled to a free credit report once a year from each of the credit bureaus, which can be obtained from AnnualCreditReport.com.
Any incorrect information listed can be dangerous to your credit score so consumers need to dispute inaccurate information with the bureaus individually.
Credit scores can be repaired but there is no overnight solution. It can take several months of proactive on-time payments and solid credit management to bring up a score.
There is no magic button for credit repair but there are third party companies that charge a fee for their assistance.
Consumers are all advised to order their reports and continually work to improve their credit rating whether they foresee needing a loan in the near-future or not.
Unless you can afford to spend hundreds or thousands of extra dollars each year, credit repair is a must for all consumers.