Your credit score is very important, and can impact your life in ways you may not suspect. The topic has been in the news lately with various lawsuits against creditors and mortgage companies for unlawful practices, but the credit score rating still remains very important. Although a much more complicated formula than your grade point average in college, think of your credit score in this way, because it follows you, takes much longer to improve than decline and is considered by others when reviewing your merit.
You can actually have three different credit scores because there are three different credit reporting companies or bureaus that have their own individual formulas. It is important to know each of these scores as you consider your financial situation. Generally, when applying for credit, the company pulls what is called a tri-merge report that pulls your credit report and score from all three companies. Your credit report outlines each individual credit account you have had, addresses where you have lived, names you have used, as well as any judgments or liens against you. This detailed information is then summarized as the “score” that can be used as a point of reference for deciding on a variety of things.
You credit score is most important for the most obvious reason: your future credit depends on it. Your credit score is the first thing considered when applying for a mortgage, car loan or other future financing. Your score will depend on whether or not you get approved, and how much that credit will cost you. Credit scores can range from 350 at the worst to 850 at the best. A really low score will get you declined completely. A middle of the road score may result in an approved application, but the terms of the credit will be adjusted. For example, you may be approved on a car loan with a credit score of 550, but you can expect the interest rate to be very, very high. Frequently on television, car companies are offering low or no interest on new automobiles. The small print says subject to credit approval, and in general, these financing options are reserved for buyers with a high credit score and a pristine credit history.
Your credit score can also impact your car and home insurance through insurance companies. For some companies, a clean driving record is not enough on its own. Your credit score can influence a company’s decision on whether or not to approve you as an insurance customer.
When searching for a new job, your credit score can also impact a potential employer’s decision to hire you. Recently, the Federal Government began dismissing employees due to their credit score, citing that their poor credit situation made them targets for terrorists who might offer them money for national security information. Regardless of whether or not you agree with this potential threat, the threat of being unemployed is very real. Many private companies require a credit check for new employment, which can influence hiring decisions regardless of the employee’s skills and experience.
Perhaps these examples are not relevant to your life, and you fail to see the importance of your credit score. Even if you already have a job, do not plan on using credit cards and want to rent for the rest of your life, your credit score can impact you significantly. Landlords, apartment complexes and property managers are using credit scores to make housing decisions. While you may not have any evictions or judgments for unpaid rent on your credit, a low credit score can still be taken into account when looking for a new place to live. This can have a major impact on your quality of life and housing standards.
You can obtain a free copy of your credit report by visiting www.annualcreditreport.com. However, this service will not provide you with your credit score for free. You can obtain your score by paying the additional fee or when you actually apply for credit. While the formulas for determining your credit score can be very vague, the consequences of your credit score are very clear. A low score results in denied applications or approved applications with high interest rates that result in high payments and longer payment terms. A high score can result in approved applications with low interest rates and low payments. It is a number worth knowing and valuing.