Your FICO score may change very soon! FICO 10 was just announced this past week, and many of us will either see an improvement or a drop in our credit score! Which one will you see? Here’s a little more info that we found online:
How much do you know about your credit score? If you’re like many people, you know you have a credit score, and you may even know what it is, but that’s about all you know! Even worse, many people have no idea WHY your credit score is even important in the first place.
If you’re not sure why you need to pay attention to your credit report and your credit scores, then you definitely need to start working on it. Because your credit score is more than just your financial history… in many instances, your credit score can actually change the course of your life! The question is, is your credit score changing your life for the better or for the worse?
Here are three things you need to understand about your credit score:
- Bad credit is expensive! Your credit score can cost you hundreds of thousands of dollars in extra fees when it’s less than excellent. There’s an old saying, “Buy with cash, pay once; buy with credit, pay three times.” Sadly, it’s the truth, as it refers to interest, or the cost of borrowing money. Not to mention the many other potential costs to bad credit, most of which lead to hundreds and even thousands of dollars spent on higher premiums for your auto and home insurance!
- Background checks aren’t all that potential employers pull! Your credit score can affect your ability to get a job. That’s right: your estimated ability to repay borrowed money (i.e., debt) also can be used to assess your suitability certain kinds of careers. Although legislation has been introduced to limit the access of prospective employers to your credit score, these are just limitations, not universal exclusions – and I promise you, many employers these days do check your credit score.
- Knowledge is power! Your credit score is a big indicator of your financial health and, as much as you’d like to, ignoring a low score won’t make it go away. Instead, it’s time to be proactive and start working to raise or restore your credit score. You just have to take the first step and then put your mind to it.
Remember, your credit score is somebody else’s business, and not just your own. Your credit score is big business these days. Not only is your score at the mercy of three different privately owned credit bureaus, whose entire business is rating you and your creditworthiness, but they actually make millions of dollars every year doing it!
These “big three” national credit bureaus, Experian, Equifax, and TransUnion, not only track your score, they CREATE your credit score. And this credit – or FICO – score that they assign you ranges anywhere from 300 on the low side to a perfect 850 on the high side. Which side do you want to be on?
If you have a low credit score, you’ll pay more for certain expenses. Whether it’s a car loan, a mortgage loan, car insurance or even the rent on an apartment, the lower your credit, the more you’ll pay. Lenders and financial service providers rely on credit scores to define if a customer can actually pay his or her bills on time. Those who skip paying bills or delay payments are considered a risk by nearly all lenders.
Most lenders consider a FICO credit score of 640 or below as poor credit, so if your credit score is below that, chances are you will pay more for personal loans, credit cards and other financial options. In many instances, you may even be denied credit, so keeping your credit score at or above 740 is important.
Here are five things that will cost you more:
1. Your Mortgage:
While it’s nearly impossible to get a mortgage with bad credit, in the event that you are able to do so, your interest rate will be quite a bit higher than someone with a higher FICO score. Over the course of a 30-year fixed-rate mortgage, that comes out to tens of thousands of dollars in interest over the full thirty years.
2. Credit Card:
Once again, that low credit score may keep you from getting that credit card, but if you do, expect to pay interest rates up to 35%.
3. Auto Loans:
Automotive finance companies will definitely charge a higher interest rate if you have a low FICO score! Those ads you see on TV only apply to “well qualified” customers. The better the FICO score, the better the interest rate you’ll get.
Surprisingly, your credit score also affects interest rates on your home and your car! Most insurers believe that both homeowners and drivers with excellent credit scores are likely to file fewer claims and get into fewer accidents, while those with lower credit scores statistically file more claims and this makes them riskier clients.
5. Apartment Rentals:
Most landlords check credit scores, and with a low credit score, you may have to put down a larger security deposit or pay a higher monthly rental rate.
Your best course of action? Remember, your credit score is extremely important. Never miss an opportunity to improve your score, make your payments on time, and keep your credit card balances below 33% of your total credit. If you’re just starting to work on your score, it will take time, but don’t give up! Keep working on your credit and you will see improvement.