About two-thirds of Americans do not have a clue what their credit score is, but understand that lenders live by the number. Like the hand of God, they choose, based on this three digit number, how much to loan you and what interest rate you will pay. Sound a little scary? This score cannot only affect your auto and home insurance rate, but it could even keep you from getting a job! Some employers, about 20%, look at your credit history to judge your character and forecast your job performance.
Ok, so what’s the deal? Well, your credit score is a number ranging from 300 to 850. The higher your score, the better chance you have of getting a better rate and saving yourself a ton of money. The chart below gives an example of how you could save hundreds a month on your mortgage if you have a great score:
Most lenders agree that if you have a score of 720+ you should have no problem getting a loan. Once you start creeping down into the 680-700 range, your payment rate will definitely change, and if you are below 620, you might not even qualify for a loan. The important fact to remember is that your score fluctuates with every credit card you sign up for and every bill you are late with. With one late payment, your score could plunge by 50 points or more.
The big three credit bureaus who hold your life in their hands are Equifax, Experian, and TransUnion. It used to be very difficult to get your credit report, or you had to pay for it, but with the power over peoples lives these companies possessed, the government recently signed the Fair and Accurate Credit Transactions Act. Now every American is entitled to a free credit report annually from each bureau. You still have to pay them to learn your actual credit score, but it is usually only around $6 from each. Don’t be surprised though if they differ from each other, some by 50 points or more.
Look for the next two installments of this series, in the upcoming weeks where I will discuss How your Score is Derived and How to Raise your Score.