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How Will You Be Judged: Lenders Will Judge You By Your Credit Score!

Apr 12, 2008
A credit score can be likened to an invisible stamp by which the whole world will judge you. Your ability to borrow money, get a job, secure housing and provide for your family is directly affected by your three-digit credit score.

What is a credit score? A credit score is a three digit number that is formulated using information from your credit report. If you pay your bills on time, honor your debts and handle your finances responsibly, you will have a higher credit score. If you have fallen behind on your bills and neglect to pay your creditors, your score will be quite low.

The most common credit scoring system in use today is the FICO (Fair Isaacs Corporation) system which was created to standardize the scoring process. With this standardized system in place, lenders can take one look at your score and make a decision about you. They do not even have to meet you. They do not have to know how much money you make, and they definitely do not have to know what personal circumstances caused you to fall behind on your bills.

Credit scores range from 300 to 850. If your score is above 720, you will have no problems borrowing money and securing low interest rates. Even if your credit score is substantially below 720, you might still be able to secure financing at a price. You see, lenders calculate their risk using your credit score and offset that risk with high interest rates.

For example: If your credit score is 760 to 799, statistics show that there is a 597 to 1 chance that you will fall behind on your bills. If your score is 500 to 600, there is an 8 to 1 chance that you will fall behind. This means that if a lender loans money to 8 people with credit scores ranging between 500 and 600, one of those people will not pay. So, what does the lender do? Charge the other 7 people higher interest rates to recoup the money lost on the defaulted loan.

This system is backwards to say the least. Well, at least for the consumer. Lenders may be keeping their heads above water, but what about families who are struggling to make ends meet? It is common sense that people who struggle financially will not be able to afford higher interest rates. Take a look: a $200,000 home with a 30 year fixed mortgage at 8% costs the homeowner $96,000 MORE in interest payments than if they had secured the same loan at 6% interest.

As you can see, it is in your best interest to improve your credit score. Even a slight change in your score can impact your finances dramatically. Even if you feel that you have good credit, you should still concentrate on getting your score up. Todays economy has made it very difficult for even the most credit worthy to secure financing. The message from financial advisers is clear: If your credit score is not above 750, you could be in trouble as lenders continuously tighten requirements.
About the Author
J Delgado is an expert in helping individuals restore there credit. To find out more about having foreclosures, bankruptcies, late payments and other derogatory items removed from your credit report contact him at creditexpert@scrupyourcredit.com or at: http://www.scrupyourcredit.com
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