WHAT IS A CREDIT SCORE?
Your credit score is an important part of your financial picture. Credit Scores are numerical measurements calculated by the three credit bureaus (Experian, TransUnion, and Equifax) to assess your risk as a borrower. If your score is high, you look like less of a risk; if your score is low, lenders may question your ability to pay what you owe. Remember good credit speaks louder them the cash you have.
Keep in mind that the Credit Bureaus are private for-profit companies. They are paid for the data by other corporations who desire to have a quick metric to measure the risk in engaging in a relationship with you. Each of the bureaus has their own private method for calculating the score. FICO is the score Experian uses, which ranges from 500 to 850. Most consumers who are regarded as having excellent credit with low risk are in the 700+ range. Many of the credit monitoring companies that advertise estimated scores will not show you your actual score. The scores they provide are based on their own metrics to provide a rough scale of your credit profile; they aren’t true FICO scores. True FICO scores can only be provided by the credit bureaus themselves.
Improving your creditworthiness takes time, but it’s worth the effort. It’s also super important to know what a high or low credit score can mean for you and your future, so let’s cotinue.
WHAT IT AFFECTS
There are numerous ways that your credit score can affect not only your ability to access credit but other areas of your life. A poor credit score will tell lenders that you are high risk. This can make your life more difficult than it needs to be because it makes it hard to access the products and services that you need and deserve, i.e. a house, a car, a loan, etc.
It can also lead to you becoming a target for crooked companies who use your poor credit score as a base to market expensive products with burdensome penalties as your only alternative. Plus, new employers can now review credit scores when considering candidates to hire. As you can see, the consequences of a negative credit score can be severe and have an impact on your daily life.
FEES
You will find that even the smallest deviation from your repayment schedule will start an avalanche of fees. Is not a coincidence that the credit card companies pile these fees on when you can least afford them. These financial institutions are powerful in making the most out of every potential customer. Every account is an opportunity to make money by your credit provider. In some cases, these additional fees can turn a minor personal short-term problem into a major credit crisis. Amazingly, most people are unaware that these fees can be waived in many situations. Late fees, reminder fees, notice fees, and penalty interest are all ways that lenders take the opportunity to make more money on your account. The extra stress that this causes and the additional tension on your finances make it imperative that you contact your lender and discuss waiving these fees.
HIGHER INTEREST RATE
When you have a lower credit score, you will usually still be able to get financing on your purchase of a home, a car or whatever it may be, BUT you will be hit with a higher interest rate. That means more money out of your pocket.
On an average home loan, a score that goes 100 points lower could result in a 1.5% higher interest rate. It doesn’t sound like much now, but over the life of an average loan, this could lead to an interest charge of an extra 55,000.00 a year, for example.
Car loans, unsecured loans, and credit cards are even worse with much higher interest rates because of the shorter loan period. Remember that the better your credit score, the more you can save when you decide to borrow and finance.
LOST EMPLOYMENT OPPORTUNITIES
Beyond the person’s control, it is becoming increasingly common for employers to include things such as your credit score and prepared credit report in their decision to employ an individual. Accident or illness and family breakups often lead to a temporary financial problem but all the employer will see are defaults and penalties. This makes the already difficult task of finding a job even harder.
HIGHER INSURANCE PREMIUMS
Some insurance companies have also become very proactive in increasing or refusing to cover people that have a poor credit score. In some states, this has been banned but most have an insurance scoring system that uses the same information that your credit score is based on but weighs slightly different.
DIVORCE
It’s widely agreed that money and finances are one of the most stressful parts of relationships. Even the strongest relationships will endure hard financial decisions that can either make or break bonds. To ensure that all your basic needs are met and that you and your family have access to the things they need to make life comfortable, it is an absolute must to have good credit.
The list can go on and on, but at the end of the day, you will be cast into having either bad credit, average credit, or good credit. Those who have good credit will enjoy life with one less thing to stress about. If you find yourself standing in the low credit category, know this and repeat after me: YOU DON’T NEED TO STAY THERE, THERE’S A WAY OUT.
Reach out to us and we’ll gladly help you restore your credit!
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